Divorces are already complicated enough. And when one or both of the parties are business owners, the process can become even more complex. Business owners tend to have more expensive divorce cases, longer divorce cases, and higher conflict divorce cases. More of these cases also end up proceeding to trial as opposed to settling. Unfortunately, statistics also show that divorce rates among entrepreneurs tend to be higher than that of the general population. That being said, if you do need a St. Louis divorce attorney for business owners, then find one with experience in helping entrepreneurs. A family law attorney with this type of experience can add quite a bit of creativity to your case. Business owners require a unique approach and if they receive that, they can obtain an excellent outcome.
How is Divorce Different for a Business Owner?
Essentially, the dissolution process is not different for business owners. The case is filed, the parties negotiate and conduct discovery, and the case is then resolved via settlement or trial. This sounds simple, but the difference comes in the details of how property division and spousal support are investigated and negotiated.
What Happens to My Business in Divorce?
Quite simply, your business is considered property that must be distributed through the dissolution process. This may just mean the assets and debts of the business, or it could also mean the value of the business as well.
The first step in considering a business during a family law case is determining if the business was started before or after the date of marriage. We would also look at how the business is structured, what type of business it is, whether either spouse brings a specific skill to the business, and how involved each spouse is with the business.
Once these factors are considered, we can figure out the options for handling the business in the dissolution proceedings. Based on these factors, we can typically do one of three things with the business.
First, we can sell the business and the parties can split the proceeds. Some spouses decide to sell the business for the highest price they can reasonably sell for and then they each take half the profit.
Second, one party can keep the business and buy out the other party’s interest. This solution generally leads to the highest conflict because the value of the business then becomes very debatable.
Third, certain businesses are amenable to being split. Some businesses can be divided in a way that each spouse can continue running a business when the divorce papers are signed, and the marriage and divorce are resolved.
The simplest of these options is generally selling the business because the business sells for the price it sells for and neither party can really question the value. Splitting the business can also be a nice solution. For example, if a married couple owns a food truck business, they could each take a truck and split the routes or festivals that they typically service.
How Do We Determine the Value of My Business?
Realistically, in most cases, we will need to determine the value of the business to resolve the division of the business. There are two primary ways we can value a business. First, the parties can agree to a value they both believe to be fair. This might be less accurate but can also be common in cases that remain uncontested.
The second method for valuing a business is business valuation. This process involves hiring a professional to dig into the details of the business and then present a value to the Court. These experts have multiple different calculations they can use to value the business. One of the more common methods is the fair market value calculation which determines the value based on what the business would likely sell for if sold by the parties.
Goodwill in Dissolution Proceedings
Goodwill is essentially a property interest in a business that can continue to serve clients and produce revenue without necessarily needing the unique skills of one person/owner. For example, f one party owns a professional practice that relies solely on their unique skills such as a well-known tailor, then the business may not have any goodwill value and the business value may be limited to the financial accounts and tangible assets.
In contrast, a financial advisor who has a well-developed book of business will typically be able to sell that business for a substantial price. Clients will typically stay with a financial firm even when it is sold, so there is clearly some goodwill value in the business.
Goodwill can be a complicated issue. The family court Judges in St. Louis, Missouri are given some discretion when it comes to marital property division in divorce proceedings.
Do Business Owners Pay Spousal Support?
Spousal support is something to consider when dividing a business. If one spouse keeps the business and that leaves the other spouse unemployed, then there are likely to be disproportionate incomes. This may leave the party retaining the business paying alimony and compensating their ex for the value of the business.
How Should I Protect Myself?
First, make sure to set aside some funds. Owning a company is already financially draining at times. Divorce can add to that stress, so make sure you have prepared ahead of time.
Second, think through the various outcomes and your comfort levels with those outcomes. If keeping the business is going to be financially prohibitive, then be willing to let it go. If you are buying out your spouse’s half of the value of the business, paying spousal support, and paying child support just to keep your business interests, is it worth it?
Taking the money from a sale may bring you more financial options than keeping the business. Many high-net-worth individuals have let go of one business to start another down the road.
An experienced St. Louis divorce attorney for business owners can guide you through the various options and help in protecting your interests.
Are there any other Considerations?
In most scenarios, business-owning spouses should try to keep their cases amicable to keep the conflict and the costs down. One way to do this would be to try mediation to reach a quick and amicable resolution.
If the amicable route is not an option, then it is typically a smart strategy to get as much information as possible early in the case. The more information you have then the more leverage you will have in negotiations.
For example, before you value the business, you truly do not have enough information to bargain. If you get the business value early in the case, then you have a good basis to settle the case.
You worked hard to develop your business, so make sure and put in the work to protect it before and after you have filed for divorce. Contact us for guidance.