When you approach the property division phase of your divorce, there will be significant assets to divide, such as the family residence, various vehicles, a boat or perhaps a vacation home in the mountains. However, if you and your spouse own a business, this asset will likely take the spotlight. How do you go about dividing a business you have built into a successful family enterprise?
In placing a value on your business, a business appraiser must first define a standard of value. There are normally two accepted standards:
- Fair market value: The price at which a property switches from a willing seller to a willing buyer. Using this standard for value, an appraiser will often apply discounts for “lack of control” and “lack of marketability.”
- Fair value: This is a figure that would be applied by the court with jurisdiction over the divorce case. It is similar to fair market value but without the discounts.
The double-dipping issue
“Double dipping” means that a spouse in a divorce case may receive a double financial award; first on income from the business and second on income for spousal support. Both your attorney and the business appraiser will be aware of such a possibility and will make the necessary adjustments.
Your business may be doing quite well, and your spouse may try to hide or transfer income, overstate expenses or understate revenue. If you suspect that your spouse is attempting to protect financial interests in this way, do not hesitate to tell your attorney. A forensic accountant can be called in to investigate.
Sometime during your business life, you and your spouse may have had the foresight to put a shareholder agreement in place with guidelines to follow in the event of your divorce. You may also have a prenuptial agreement that sheds light on the disposition of the business if divorce is in the offing. Agreements like these provide clarity and make property division easier. Considering the hard work you and your spouse have put into the family business, you want to be sure that the ultimate disposition of this asset is going to be fair to both of you.