You and your spouse may have taken over the family business after you got married or built a new business together from the ground up. Now, you are planning to divorce. You know how most of the property division will go, but what will happen to the business?
First things first
You basically have three options: buy out your spouse’s share of the business, sell it outright or continue operating as co-owners if you feel you can work together after your divorce. The first two options will require placing a value on the business before a buyout or sale can take place. If you and your soon-to-be-ex decide to continue as business partners, a valuation will not be necessary.
If you need a valuation, you will have to engage the services of a business appraiser who will first decide upon a standard of value. The appraiser will likely choose one of two standards: fair value or fair market value. The definition of the latter is the price for which a willing buyer would purchase a business from a willing seller when there is no pressure on either side to make the deal. In this approach, the appraiser would probably apply discounts, one for lack of control and one for lack of marketability. Discounts are not normally present in determining fair value, however, the meaning of which depends on the context of business use.
The income approach
Your appraiser could also use the income approach to place a value on the business. He or she would determine the worth by estimating future revenue. The concern here is the possibility of double dipping. This occurs if a non-business-owner spouse were to receive a share of the company as well as alimony that comes from the other spouse’s earnings in the business.
Making the right decision
Your business may be your largest asset and the focal point of the property division phase of your divorce. Your attorney may call upon the services of outside professionals who can lend their expertise in helping you decide what should happen to the business that has been such an important part of your life.