Special Considerations for Business Owners Going through Divorce
Today’s guest blogger is Scott Morgan, a Texas divorce attorney. Scott is the founder of the Morgan Law Firm and is board certified in family law by the Texas Board of Legal Specialization. Today he shares his thoughts on the special issues business owners face in a divorce case.
It goes without saying that when you say “I do” you are expecting (or at least hoping) that it will last forever. But statistically speaking about 50% of the time it won’t. As heartbreaking as divorce is for anyone, it can be especially stressful and complicated for a business owner. In this article I will address some of the issues involved in divorce for business owners and how best to handle them.
Consider Saying “Prenup” Before Saying “I Do”
Every state in the country has laws that permit parties to enter a contractual agreement known as a premarital agreement or “prenup.” This agreement would govern many of the issues if they were to later divorce. For a business owner, a premarital agreement can be a lifesaver. If you are at the stage where you are considering marriage and you own a business it would be a very good idea to speak to a qualified family law attorney in your area about the possibility of a premarital agreement to protect your interests.
Who Gets the Business?
Depending on the facts and the law of the governing jurisdiction, your business may be a divisible marital asset. If so, your divorce will need to determine who will be awarded that business. While it is possible to have both spouses awarded a share of the business, as a practical matter it is pretty difficult for most people to continue running a business with their former spouse. So a much more likely result is that one spouse will be awarded the business (typically the spouse more involved and essential to the functioning of the business), while the other spouse’s interest will be bought out.
How Do You Determine the Amount of the Buyout?
The key issue in most business owner divorce cases is the valuation of the business and the terms of the non-owning spouse’s buyout. As you might expect in this scenario, the spouse who will continue to own the business will claim it has a very low value while the other spouse will assert that the business is the next Facebook and has an extraordinarily high value. In most of these cases it is necessary for a professional business valuation expert to evaluate the business and prepare a report analyzing the business and appraising its value.
In some cases both parties each retain their own business valuation expert. Both experts will prepare their own report and, if necessary, testify at trial in support of their analysis and valuation. Obviously, a trial with dueling experts can get very expensive and usually occurs only when there is an extraordinary amount of money at issue.
Conclusion
Without question divorcing as a business owner is more complicated than the much more routine divorce where the parties are employees and their assets are more typical (real estate, 401(k), vehicles, etc.). While the issues of a business owner going through a divorce are more complex, with a very good divorce attorney and appropriate preparation the case can be handled in a way that minimizes the damage.
