Divorce: When You Own a Business with Your Spouse — Part II

Divorce: When You Own a Business with Your Spouse — Part II

In my last blog post, I reviewed the basic approach when a divorcing couple owns a business together (read the full article HERE).

If the couple is able to continue working together on the business, great. Once they amend their business agreement to reflect a clear chain of command, best of luck to them.

If they are like most couples and cannot continue working together, the value of the business must be determined.

Hiring a Business Valuator

If both parties agree on the value of the business, there is no need to bring in a business valuator. Unfortunately, determining the value of the business can be difficult and complicated, and it’s an area where many fights break out among divorcing parties.

A business valuator is a professional who will come in, assess the health of the business, its potential for growth, its assets and liabilities, any goodwill, etc. Once looking at all these factors, the valuator will assign a dollar value to the business.

But there’s one problem: Not all valuators are created equal… and not all valuators will agree.

I had a case years ago where the wife had started a free coupon magazine that people could pick up at diners, the pharmacy, local restaurants, etc. The magazine didn’t make much money: her business model was selling advertising, then she would have to pay to publish, print and deliver the magazine. It was a lot of work.

When she got divorced, everyone agreed that she would keep the business. It was her brainchild. Problems arose when her business valuator said it was worth about $40,000, but his valuator found it was worth just under $1 million!

That’s a huge difference. With these kinds of numbers, we knew a compromise was unlikely, and we ended up going to Court. The two valuations where just too different.

Put Your Business in Your Prenuptial Agreement

If you already own a business and are planning to get married, putting the business is a prenuptial agreement is a good idea. Even if your spouse has no intention of working for the business, things can still get complicated in a divorce.

For example, one client had owned his business for a very long time. He worked in construction. When it was time for him to get divorced, he thought it was obvious that he’d walk away with the business and no equalization payment; after all, his wife hadn’t lifted a finger to work on it, so why should she be entitled to any of it?

She had another idea. When it came down to it, she claimed that she had indeed contributed to the growth of the business: after all, who had organized all those staff dinner parties? Who had entertained the clients when they came to town? Who had watched the children while he worked long hours at the business? She claimed that, had it not been for her attentive tending to his home life and helping to nurture important business relationships, he would not have been as successful… and the judge agreed.

No matter how you parse it, getting divorced when a business is in the picture is complicated. Call our office today at 303-449-1873 for a complimentary consultation and we’ll discuss how the process will work for you.

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