Owning a small business can be exciting, profitable, and stressful. Just like a car, stock account, or couch, however, a business created during a marriage is typically considered a community asset all the same. In the event of divorce, a business owned by one (or both) spouses should be disbursed equitably amongst the remaining community assets. How do the Courts look to divide small businesses in a divorce?
Assuming the business is a community asset, it should be dealt with like all community assets. The Courts will seek to divide the property fairly and equitably. Most of the time, that means distributed the assets and debts equally amongst the parties. The 50-50 split can be different depending on the circumstances of the parties, but only in unusual or rare situations.
The first question before dividing a business is valuing the business. While not exhaustive, here are several different aspects that the Court will look to while dividing a business:
A forensic CPA may be involved to help determine the true value of your business. While costly, a Court will often require this type of approach if the parties cannot agree on the reasonable value of the asset. The accountant will review important documents like Profit and Loss reports, cash flow ledgers, inventory lists, tax returns, and bookkeeping files to establish their estimated valuation. The parties may even jointly retain a CPA to reach an agreed value without dispute. A CPA may also project a businesses income as part of their analysis. This income approach can be favorable to understand the true value of the asset but can be more complicated than a simple review of the assets.
In the end, a distinct and complicated financial analysis can be expensive, but it may be the only way for the parties to agree on a business’ value. If hiring a CPA can avoid substantial litigation or trial, then that cost may be worth incurring. Your legal team can help ensure your questions are answered about forensic accounting. Knowing whether it’s worth it to fight about business value or seek an informal agreement takes understanding the pros and cons to divorce lawsuits.
If you own your own business or are married to an entrepreneur, you must understand your rights and obligations as part of a divorce. Without proper counsel, you may be allowing your significant other the opportunity to take advantage of the business for their benefit. The experienced litigators at the law offices of Magnuson Lowell PS are ready and willing to help you fight for your rights. Call today for a free case evaluation.