Business Divorce Lawyer in Raleigh, NC
For a couple that owns a business, the disposition of business assets can be a complicating factor in marital asset division during a divorce. The value of business assets such as bank accounts, equipment, product, websites, and real property in a business adds up.
In a properly managed divorce settlement, if one spouse does not simply buy out the other spouse, then the jointly owned business assets are divided through a process called equitable distribution.
However, reaching an agreement on what is equitable or fair when business assets are distributed in a divorce can be a point of contention. It requires a business valuation to determine what the assets of a business are worth.
A divorce lawyer from Charles R. Ullman & Associates can help you through the division of business assets if you have a family-owned business or you are part owner of a business and are headed for divorce.
We can enlist the experts needed to identify the fair value of your business interests and advocate for you in negotiations over the final disposition of marital property including business assets and liabilities.
Because of our experience in divorces with businesses involved, we can protect you from efforts by your estranged spouse to devalue assets or hide business income.
If you are facing a divorce that will require a division of business assets, it is in your best interest to consult with a knowledgeable divorce lawyer as soon as possible.
When you work with Charles R. Ullman & Associates in Raleigh, N.C., you will have an attorney that you can trust who is certified as a Specialist in Family Law by the North Carolina State Bar. Charles Ullman is well-versed in the complex process of marital asset division.
Valuing a Business During Divorce
Even if divorcing spouses amicably agree to sell business interests that they share – to one spouse or a third party – the first step to doing it correctly is determining the proper value of the business assets and the cost of liabilities. Determining the value of a private business can be complicated.
The two most commonly used methods of business valuation are:
- The book value method: Based on the assets and liabilities listed in the company’s books, less depreciation and adjusted for appreciation.
- The market or earnings approach: A valuation method in which the business is valued according to what an outside buyer would pay for it while factoring in capacity for future earnings.
Depending on the size and the complexity of the business, we would enlist a business consultant from several we regularly work with to examine the business’s books, physical assets, the market, and other factors. The issues to be examined include:
- What the business owns: This includes tangible assets, such as machinery, equipment, and inventory, and intangible assets, such as patents, trademarks, market visibility/share, and goodwill.
- What the business owes: Responsibility for the business’s liabilities can also be distributed among spouses in a divorce settlement.
- Profitability of the business: This is determined by subtracting the business’s expenses from its income.
Our attorneys, as well as our expert consultants, also keep a lookout for indications that a business-owner spouse is engaging in financial maneuvering to make a business appear less profitable than it actually is when a divorce is pending.
Some common signs of Sudden Income Deficit Syndrome (SIDS) include:
- Stalling or refusing to turn over financial documents or to allow valuation of the business
- Drawing a low salary while the business absorbs their personal expenses
- Claims of business losses and other problems that coincide with the decision to separate and divorce
- Your spouse’s lifestyle does not reflect the purported loss of business income.
A primary business asset valuation and division issue is whether business assets should be considered marital property (jointly owned) or separate and belonging to one spouse.
If the business interest was acquired during the marriage, with joint funds, it would be considered marital property, and its value would properly be shared equitably.
If records show that one spouse owned a business asset before the date of marriage, or acquired it with separate funds, it would be considered separate property to be retained by the owner spouse.
However, even if one spouse owned an asset before the marriage, such as a business handed down from parents to child, the other marital partner may be able to lay claim to partial ownership.
This may be due to sweat equity, or personal time and effort invested into making the business successful, or because marital funds were at some point put toward renovations, expansion, or business marketing campaigns.
The spouse who came into the family business would rightly seek compensation for their contribution to the business’s success, as well as proceeds from investments they were a part of.
How Are Business Assets Divided In Divorce?
The final division of business assets in a divorce will be part of the overall asset division and the divorce settlement, which a judge must approve.
In theory, a divorcing couple could come to an agreement as to how business assets should be equitably divided. More likely, they would do so with the assistance of a third party, such as a mediator or their respective attorneys. Asset division is set down in a contract that is part of the couple’s separation agreement.
In contentious divorces, a couple may file a claim for equitable distribution in district court in the county where they lived. This asks a judge to decide for them and issue an order outlining asset division. Each spouse’s attorney would make their client’s case before the judge.
If during the time between asking a judge to rule and going to court the couple comes to an agreement, they could seek a consent judgment. If the court decides their agreement is fair, the judge will sign it.
When in court, regardless of whether the divorcing couple has come to an agreement, the judge will have the final say over:
- Whether property is marital or separate
- Value placed on assets and liabilities
- How property including business assets and liabilities will be distributed.
The court will also have the power to enforce its asset division order, meaning if either you or your spouse failed to follow the order, you would face being held in contempt of court.
How Can I Protect My Business From A Divorce?
The dissolution of your marriage could mean the end of your business. If you have business partners outside of your marriage, any one of their divorces could doom your business, as well. However, there are proactive steps you can take ahead of time to protect your business.
Your first option, thinking far ahead, is a prenuptial agreement, which could stipulate that your pre-existing business, its assets, and liabilities will forever be considered your separate property.
A prenup is in essence a contract, so it is also possible to obtain a “postnup.” Either could spell out sole rights to a business, a buy-sell agreement in a divorce, agreed-upon valuation methodology, or other terms. You could require other business partners or shareholders to obtain prenups or postnups.
However, courts sometimes put less stock in postnuptial agreements on the theory that individuals have less bargaining power once married. It needs to be a fair agreement, signed without coercion, and as straightforward as possible.
If you wish to establish sole rights to the business, you will need to make sure that your spouse never has a connection to your business that could in any way be interpreted as contributing to it.
Other ways to protect your business in case of divorce include:
- Buy-back provisions. Business bylaws could establish the right of partners or shareholders to buy the shares or interest of any divorcing parties so they can maintain control of the business.
- Limited participation. If you distribute shares to other family members, such as your children or their spouses as gifts or because they worked with you, they have a stake in how assets are divided in your divorce – or their own. This complicates matters if they investigate valuation and try to extract compensation from the company.
- Pay yourself well. Make sure you pay yourself a competitive salary from your business, instead of making the mistake of putting everything back into the company. If all revenue is reinvested in the business, an estranged spouse could claim they never derived any value from the family business and therefore they deserve more money or a larger share of the business moving forward.
- Transfer your interests. This protects the business but mainly prevents your spouse from getting ahold of it. The ability to transfer your interest or share of a business to another partner will depend on the structure of the business. You may be able to place your general partnership within the confines of a limited liability corporation to wall it off from your divorce. The LLC, an entity standing separate from you (and your marriage), would take on all of the business’s liability while you retain control of day-to-day dealings of the limited partnership.
Contact An Experienced Business Divorce Attorney Today
At Charles R. Ullman & Associates, an experienced Raleigh divorce lawyer stands ready to assist you with every aspect of divorce, including business valuation and distribution of business and marital assets.
Contact our firm today to schedule a consultation to address how your business ownership may affect your divorce and/or how we can keep your divorce from irreversibly damaging your business.