Divorce For Business Owners
As a business owner, there is an extra layer of complication when it comes to divorce. Wisconsin is a marital property state which means your interest in a business and the income you make from your business are assets subject to division in a divorce as well as income available for support. But what does this really mean to you and your business, your partners, and your shareholders?
The value of your business will be a value awarded to you in the divorce settlement. Your spouse will then need to receive assets equal in value to your business in order to arrive at an equal division. If there are not sufficient assets to offset the value of your business, then a cash equalization payment may be ordered to be paid in a lump sum or a payment plan may be ordered allowing you to pay the equalization payment to your spouse over time. If you are able to equalize your marital estate with assets or an equalization payment, you will not be required to sell your business. The details of these arrangements are intricate and require experienced attorneys to negotiate satisfactory settlements.
Ascertaining the value of your business must be completed before negotiations can begin. Business valuations are complex and require the involvement of a financial expert trained and certified in business valuations. There are several ways to value businesses (i.e. fair market value, intrinsic value) and your attorney is not qualified to offer an opinion as to value. The business valuator will require information regarding your business such as financial statements, annual reports, bank records, shareholder agreements. There may be instances where the business valuator will have to view your facilities and meet with management and or executives.
A business valuator can be hired by you or your spouse, or a joint evaluator can be hired. Once a valuation is complete and an opinion of value is generated, it is possible that you (or your spouse) will not agree with the value attributed to your business. In that event, there is an option to hire a separate expert to review the report or hire an alternate business valuator to conduct a separate valuation. Business valuations have a degree of subjectivity to them, so it is important to understand the numbers and be sure that the numbers match the dynamics of the business.
Income Versus Asset
The question of whether your business is an asset subject to division, an income generator, or both is the source of much consternation in divorce proceedings. Many business owners whose businesses do not have tangible assets or inventory tend to believe that their businesses have no value. However, if your business generates cash flow, it can be valued as an asset. How this plays into the divorce settlement needs to be carefully navigated. Our experienced attorneys will be able to take you through the nuances of this situation and help guide you in making settlement or litigation decisions that are best for you and your business.
When a business has partners or shareholders, there is likely concern about the dissemination of confidential business information. It is completely appropriate to insist upon a confidentiality agreement between attorneys, business valuators and your spouse to ensure that confidential business information is protected and not further disseminated. These agreements have varying levels of restrictions and should be negotiated, signed by the parties, and ordered by the court prior to any exchange of business information is made.
Each business owner has a unique set of facts that need to be carefully applied to a divorce settlement. There are many moving parts in a business valuation as well as negotiations involving business owners. An experienced attorney is critical to the succession of your business post-divorce.
Spouses Of Business Owners
If your spouse owns a business, then it is necessary for you to have a complete understanding of the value of the business for purposes of property division in your divorce. It is also important to know how the business generates income for purposes of the payment of child support and/or maintenance. As mentioned above, the valuation of a business can be complicated. While it may be your intention to keep things amicable between you and your spouse, agreeing to a value of a business without having the benefit of a business appraisal is a dangerous proposition. Your spouse even may be good intentioned with a suggested value but it is imperative to understand that even a business owner may not have a true understanding of what the business is actually worth.
In order to ensure the most equitable division of the marital estate, it is necessary for you and your lawyer to have an understanding of business valuation and how that valuation intersects with the overall negotiations.
We offer free initial consultations at our Milwaukee and Waukesha offices; contact Nelson, Krueger & Millenbach, LLC by phone at 262-307-2775 or 414-939-0529 or send us an email.