Options for Couples with Family Businesses in Divorce

 Posted on October 19,2017 in Divorce

One of the largest challenges of divorce is dividing marital property. Each party typically has a legitimate claim to assets acquired during the marriage, and the need to relinquish rights over some of this property can be difficult to negotiate and settle. Dividing marital assets becomes significantly more complex if there is a family business involved.

Family businesses constitute a considerable portion of this country's employment and economic growth, but a good number are vulnerable to internal and external changes that threaten their survival, including divorce. The potential risk to a family business's stability following divorce requires obtaining a divorce attorney with experience dividing complex assets to ensure the division is handled properly.

Settlements and divorce orders pertaining to property division should be treated as the final word on this issue, as the Courts will only revisit the division of marital assets in rare and very limited circumstances. Thus, addressing this matter correctly on the first attempt is crucial.

Figuring Out What the Business Is Worth

When dividing assets in a divorce, the specific concern is not necessarily receiving certain property, but rather receiving property worth a particular amount. Thus, determining the value of marital assets is a big part of settling this issue.

Parties should try to decide property division privately if possible. However, if a Court is asked to make this decision, the Judge will divide property according to what is most equitable or fair. Still, family businesses are tricky. Usually, at least one spouse wants to continue running the business, meaning the other spouse must receive something in exchange for his or her share. If both spouses want a say in operations after the divorce, the control of the business then becomes a key point of negotiation.

In either case, valuing a business is necessary before the asset can be divided, and the amount assigned is often a source of dispute. Independent experts are commonly employed to perform a business valuation, and look at the following factors:

• The current local and national economy, where applicable;
• Financial records, i.e., revenue, debts, open orders, projected earnings, etc.;
• The nature of the business;
• The value of stock, if appropriate; and
• The value of intangible assets, such as customer relations and goodwill.

Note that Courts will use the fair market value of an asset as of the date of trial or other designated date by the Court or parties for division purposes, and may use outside professional experts to ascertain this information.

Options for Dividing

Deciding how to divide a family business is principally driven by whether one or both spouses desire to keep the business running. If both want to cease involvement, selling the business and dividing the proceeds is a relatively easy resolution. If only one spouse wishes to continue operating the business, the buyout of the other spouse is typically the easiest method of dividing the asset. However, unless there is an abundance of liquid cash available, another arrangement will need to be made.

One option is to offset the value of the other spouse's share with a larger portion of other marital assets, such as retirement accounts and real estate. Alternatively, the party keeping the business can take out a loan to pay off the other spouse. If this is not an option, then he or she could execute a property settlement note that obligates him or her to pay the other spouse's share over a set period time with interest. An experienced divorce attorney can counsel a client on the legal implications of each settlement option, and help create a structure that works best under the circumstances of the case.

Speak with an Illinois Divorce Attorney

Family businesses often take years of hard work and sacrifice to build into a sustainable enterprise. Do not let all that effort go in vain because you are getting divorced. Talk to a dedicated Arlington Heights divorce attorney with experience in complex property division. The Law Office of Nicholas W. Richardson, P.C. knows how to approach these cases, and brings in the professionals you need to get a result that is fair and appropriate. Contact this Palatine law office today for a free initial consultation.

Source:

https://www.kmco.com/resource-center/article/looking-forward/the-role-of-company-culture-in-a-family-business-valuation/