Small Business Owners Or Spouses
Many small business owners and their spouses frequently find themselves in a quandary when preparing to file for divorce, particularly when the business is a primary asset. One can’t assume that a pre-existing business is shielded from the division of marital assets, particularly if there is no prenuptial or postnuptial agreement in place.
Fast Fact: Increases in the value of the business during the marriage, and any corresponding changes to a couple’s financial situation, can be tied to the marital property to be divided. Further complexity can be expected if the business produced income that the entire family shared during the marriage years.
The bottom line is that when dividing marital assets – whether it be a house, car, collections, or the business – each asset needs to be professionally appraised. And with respect to the business, to be in agreement, both marital partners must understand how the valuation is determined and be a part of this process. The use of qualified and experienced professionals to assist in that valuation cannot be overstated. Erin Colgan Law is experienced in assisting divorcing clients who count a small business as a marital asset.
How Are Small Business Valued In Divorce?
Many of our clients ask, “How will my small business be valued in my divorce?” Small businesses valuations are based both on the present value of the business at the time of the divorce, as well as the expected future value and income potential it may provide. To do that, one needs access to the business bank accounts, an inventory of assets, any insurance tied to the primary owner and the business, changes in beneficiaries, salaries paid, lines of credit in place among other relevant data. And when red flags or other irregularities are uncovered, additional expertise such as a forensic accountant, may need to be engaged to assist in ascertaining the accuracy of the businesses’ value.
When determining the split of a business, other factors are also considered such as the length of the marriage, the ability of each spouse to support themselves, and the age, health, and education of each spouse.
How Are Business Assets Divided In Divorce?
In addition to a prenuptial agreement, which identifies property considered separate or marital, postnuptial agreements can be created which consider any new financial considerations since the wedding. A postnuptial agreement specifies what is agreed to by the couple with respect to a host of financial considerations, including future allocations of assets, liabilities, inheritances, child support, etc. In the absence of a prenuptial agreement, we encourage our clients long before divorce is on the table to consider a postnuptial agreement, particularly when a business is one of those assets.
With respect to a small business, with or without a pre or postnuptial agreement, having a proper legal corporate structure for it is important. Proper legal entities (such as a PC or LLC) provide provisions that protect the interest of the business owners, particularly if there is another business partner, external to the marriage, involved. For all small business owners, keeping complete and organized records and data is important, especially for recording profit, loss, tax filings, and records of payroll, insurance, permits, capital expenses, and financial ledgers, to name a few.
We work with our clients to negotiate a financial settlement for the division of a business that is agreeable to both spouses, at the time of divorce and for the years that follow.
If you are a small business owner, or the spouse of a small business owner facing divorce, we can help. Call us at 718-981-5055 to schedule a consultation with Erin Colgan, Esq., Staten Island’s premier divorce lawyer and certified mediator.