The separation and divorce process is tragic on an interpersonal level in that it ends a long-term relationship that was once full of hope. Adding insult to injury, the level of animosity in a divorce can escalate when it comes to money. A common matter of dispute regarding money occurs when a family business is involved. The heart of the legal conflict comes in the answers to two questions: (1) what is the value of the business; and (2) how will it be distributed in the divorce?
Fair Value of the Business
Assessing the net value of a business truly depends on the size and complexity of the business. In North Carolina, the general starting point in dividing any marital property is an equal division of the net value of marital and divisible property. However, it is typically not recommended, or even sometimes feasible, to literally divide a business so the goal is to determine the value of the business and divide it equitably in one of the various ways laid out below. Lawyers will work closely with forensic accountants to determine a value for the business. These experts can consider a variety of factors, such as the value of assets, liabilities, projected growth, and goodwill. Often, parties will use their own experts and establish competing values. Many times, the party who operates the business will attempt to undervalue the business so that their ex receives a lower distribution in the divorce.
A court can look at numerous additional considerations, such as:
- Whether the business existed prior to the marriage. If it existed as an established business prior to the marriage, the business is likely the separate property of the spouse who founded the company. However, if the business took off during the marriage, the court may consider the other spouse’s contributions as well as investments of marital property into the business.
- If the business began during the marriage, the business is marital property. Even when one spouse physically worked at the business, while the other remained at home, North Carolina views both as having contributed to the success of the business.
Dividing the Business
There are several ways that a business is commonly distributed in the divorce:
- The business is sold off, and the net proceeds are divided.
- One spouse buys the other out.
- The business is awarded to one spouse, while the other gets alimony or a disproportionate division of marital or divisible property to compensate.
- The business continues as-is, and both parties continue to operate (and profit from) the business together.
If you are divorcing and own a business, you should contact an attorney immediately. Time is of the essence when preserving and valuing a business. New Direction Family Law will work closely with a forensic expert to establish a business valuation that is complete and accurate. We serve Wake, Johnston, Lee, Harnett, Cumberland, Nash, Granville, Franklin, and Durham counties. Contact us today at (919) 719-3470 to schedule a comprehensive consultation, or visit us at our website