Navigating Divorce As A Business Owner

As a business owner, there is an extra layer of complication when it comes to divorce. Wisconsin is a marital property state. This means your interest in a business and the income you make from it are subject to division in divorce. But what does this really mean to you and your business, your partners, and your shareholders?

If you will receive the value of your business as an award in the divorce settlement, your spouse will need to receive assets equal in value to your business to arrive at an equal division.

If there are not sufficient assets to offset the value of your business, a cash equalization payment may be necessary. You can pay it in one lump sum or over time with a payment plan. If you can equalize your marital estate with assets or an equalization payment, selling your business will not be necessary.

The details of these arrangements are intricate and require experienced attorneys to negotiate satisfactory settlements.

 Set up a free consultation. Call Nelson, Krueger & Millenbach, LLC, at our Wauwatosa office at 414-939-0529 or fill out our online form to get started.

The Importance Of Business Valuation In Divorce

Ascertaining the value of your business must happen before negotiations can begin relative to settlement. 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, including fair market value and intrinsic value. Your attorney is not qualified to offer an opinion as to value, but can assist you in hiring the right expert for your unique case. The business valuator will require information regarding your business, such as financial statements, annual reports, bank records and shareholder agreements. There may be instances where the business valuator will have to view your facilities and meet with management.

You or your spouse may hire a business valuator separately or jointly. Once a valuation is complete, it is possible that you (or your spouse) will not agree with it. In that event, you can hire a separate expert to review the report. Alternatively, you can hire another business valuator to conduct a separate valuation. Business valuations are not entirely objective. It is important to understand the numbers and be sure that they match the dynamics of the business.

Is Your Business An Asset Or Income?

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.

Options For Dividing A Business In Divorce

Once your business receives a valuation, you must determine how to handle it as part of the overall division of property. You have several options to consider.

Selling The Business

This involves evaluating the business’s total value and finding a buyer willing to purchase it. Once the sale is complete, the proceeds and/or liabilities will be distributed between you and your spouse based on an agreed-upon percentage. Additionally, any outstanding debts or liabilities of the business should be settled or allocated between both parties as part of the agreement.

Buying Out Your Spouse

If continuing to run the business on your own is a viable option, you will first need to determine the fair market value of your spouse’s share of the business. You would then need to arrange financing or use personal assets to purchase their share. This option allows you to maintain control of the business and continue its operations independently.

Accepting A Buyout Offer From Your Spouse

If you do not want to remain active in running the business, you can negotiate a buyout where your spouse purchases your interest. This involves agreeing on the value of your interest and receiving compensation for it. This option allows you to step away from the business while your spouse continues its operations.

Remaining Business Partners After Divorce

This option would be extremely difficult as it would be very challenging for most divorced couples to effectively run a business together and would likely require further business and operating agreements defining the post-divorce business relationship.

If you do decide to remain business partners, it would be critical to clearly define what roles each party will have and to formalize your agreement in a legal contract. This would require the involvement of business and tax professionals in addition to divorce attorneys. However, by defining your roles up front, you will reduce points of conflict and prevent legal disputes later.

Maintaining Business Confidentiality During Divorce

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 the protection of confidential business information. These agreements have varying levels of restrictions, so you and your spouse should negotiate the terms of these agreements prior to exchanging any business information with external parties.

Each business owner has a unique set of facts they need to carefully apply 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.

Divorce Considerations For 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, so it is important to engage a knowledgeable expert to assist you and your attorney in understanding a business’ value and the income stream it generates.

While it may be your intention to keep things amicable between you and your spouse, agreeing to a business’s value without having the benefit of a business appraisal is a dangerous proposition. Your spouse may even be well-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.

To ensure the most equitable division of the marital estate, you and your lawyer must understand business valuation and how that valuation intersects with the overall negotiations.

Talk To A Knowledgeable Attorney Today

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.