When a husband or wife faces the prospect of divorce, and either spouse owns a business, the divorce can become very complicated, difficult, and costly. Much like a car, the business may be an asset in the divorce. It is part of the marital estate and must be divided between the parties. Unlike a car, determining the value of a business can be a difficult task. The parties cannot simply pull out a blue book or assess what similar cars are selling for to determine the value of the business. If one spouse started and developed the business during the marriage, the spouse with day-to-day involvement with the business is likely to have a better understanding of the value of the business as well as better access to financial records and any evidence necessary to determine the value of the business.
In cases where both parties started a business (together) during the course of the marriage, the business is a marital asset. Division is easier in these cases because both parties have day-to-day involvement with the business. This means they are likely to agree on an appropriate value for the business. When an agreement on value has been reached, the value can be divided between the parties. When only one spouse is responsible for the daily operations of the business, the responsible spouse will likely maintain control of the business. However, the other spouse is still entitled to a portion of the value of the business.
If a business is part of the property that must be divided between marital parties, valuation of the business and equitable distribution between the parties is likely to be the most difficult issue to resolve. While discovery requests for the financials of the business can be helpful, they often tend to overstate or understate the assets and net profits of the business based on the rationale for production of the financial record. For the purpose of obtaining financing, profit and loss statements tend to provide an overly optimistic view of the companies assets and net profits. By contrast, tax returns will often permit deductions that create an understated picture of a company's actual profits.
If one of the parties involved in a divorce owns a business, a family law attorney is essential to help determine valuation and distribution. Obtaining discovery of financial records and determining the value of a business is a complex process that only a family law attorney can decipher If the business has a relatively substantial value and the parties differ significantly in their estimates of the value of the business. An expert such as a forensic accountant may be necessary in order to obtain an objective valuation of the business. A forensic accountant can be fairly expensive, but an experienced family law attorney can counsel you on whether the benefits are worth the cost.