How Are Business Assets Divided in a High-Asset Divorce?

A marriage is a partnership. You and your spouse work together to build a happy home life, which can involve raising a family, acquiring property, and possibly starting a business.

Sadly, despite all the effort you put into maintaining that partnership, it sometimes fails.

That failure can stem from many reasons, but to move on, you have to work together one last time to divide your marital assets. When those assets include a business, things get complicated. Dividing business assets in a high-asset divorce will require compromise.

You’ll also need an experienced divorce attorney to guide you and explain your state’s property-division laws.

Determining Whether a Business Is Marital or Separate Property

As you prepare to divide your assets, you need to put everything on the table. In addition to homes, vehicles, and other high-value items, a business may be part of the marriage. One of the first steps is to establish whether the business qualifies as marital property, separate property, or a combination of both. This is how to break it down:

Businesses Established During the Marriage

If you started the business after you were married, those ownership interests are generally considered marital property. Much like a home or car with only one person on the title, the business’s value would be considered a marital asset even if only one spouse worked in the business.

Businesses Owned Before Marriage

A business one spouse opened before the marriage might qualify as separate property.

In theory, that would mean the business owner would retain that business. However, if that business generates profits that become part of the couple’s finances, those profits might be subject to division. Determining that depends on the various state laws.

Businesses Funded With Marital Assets

Imagine a business was started before the marriage. When a couple uses joint savings or other marital funds to expand or support a business, it can convert that business into a marital asset.

Inherited or Gifted Businesses

If you acquired a business through an inheritance or as an individual gift, it might remain separate property unless you used marital funds. That can affect its classification.

Spousal Contributions

You may have helped manage the business or provided unpaid labor. In that scenario, you contributed to the business’ growth, which means you may be able to claim a portion of its value.

Once you determine whether the business is a marital asset or a separate asset, you can move on to valuing it and deciding how to divide it.

How Are Business Interests Valued During Divorce?

Moving into the business valuation phase of negotiations is often the most contentious part of a high-asset divorce. Your attorney will likely recommend bringing in a financial expert or forensic accountant to review all relevant documentation, including financial statements, tax returns, ownership agreements, revenue projections, and other records, to determine the company’s value.

These are three common valuation methods:

• Asset-based approach: Calculate the value of the company’s assets minus its liabilities.
• Income-based approach: This approach estimates the value based on anticipated future earnings and cash flow.
• Market-based approach: This approach compares the business with similar companies that have recently sold.

Intangible assets may also be part of the equation. Those assets include intellectual property, customer relationships, and brand recognition. Everything needs to be considered.

Options for Dividing Business Assets

So, you’ve determined whether the business is now marital or separate. You have also established the value. Now, you have to divide the asset.

Physically dividing a company is not practical. Instead, your attorney can suggest a spousal buyout. That is when one spouse retains ownership of the business and compensates the other spouse for their marital share.

You could also consider offsetting assets. For example, if your spouse keeps the business, you might retain outright ownership of the family home. You can always sell the business and split the proceeds. That often happens if you can’t agree and the court orders the split.

One spouse might also keep the business and then compensate the other spouse over time through structured payments. That helps avoid immediately liquidating business assets.

In rare cases, spouses may choose to continue owning the business. This would mean coming to a new cooperation agreement that clearly defines your management responsibilities.

Before you decide how to divide the business, you and your attorney will review all options to determine what best supports your financial future.

Factors That Can Complicate Business Asset Division

Dividing business assets in a divorce follows a specific pattern. However, that doesn’t mean there won’t be complications. High-asset divorces often involve additional financial and legal considerations, including:

• Complex ownership structures
• Outstanding loans, guarantees, and other liabilities
• Tax consequences
• Hidden or undervalued assets
• Prenuptial or postnuptial agreements
• Shareholder and partnership agreements

Dividing a business’s assets is understandably stressful and, at times, even overwhelming.

That’s why you need to enlist the support of Davis & Associates. We provide guidance for divorcing couples across multiple states. Our team has extensive knowledge of property division laws, tax codes, and business regulations.

We want to ensure our clients receive the best advice to support their future.

Call to schedule a consultation to get the process started. You’ll feel better knowing you have a dedicated advocate protecting your interests.