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What You Should Know About Dividing a Business In a Divorce

Posted by J. Benjamin Stevens | Feb 16, 2014 | 0 Comments

Everyone going through a South Carolina divorce has encountered the painful reality of equitable division. Equitable division refers to the process of splitting up a couple's marital assets and debts. This means that bank accounts, stocks and bonds, retirement accounts, cars, houses, and even furnishings and other personal property must be divided between the parties as part of the divorce. What some people may not realize is that small businesses (and large ones too) are also subject to equitable division, and dividing a business in a divorce requires special attention.

Does divorce mean your ex-spouse owns half the business?

One of the issues that can cause confusion when a business owner goes through a divorce is that many times, the business is owned solely by one spouse. In other words, prior to divorce, the other spouse does not have any ownership interest in the company. So does divorce suddenly grant your spouse half of the business you worked long and hard to build? Not exactly.

The spouse who does not own the business does not immediately become a “co-owner” during a divorce. Instead, that spouse may have an interest in the business due to the fact that the value of the business was created (or increased) during the course of the marriage. The marital equity in the business must be taken into consideration like all of the other assets, and the spouse who owns the business is typically responsible for compensating the other party for the value of that interest.

How do you split the business?

Rather than granting your spouse a share of the business, many people prefer to simply buy out the value of the other party's interest. To do this, experts are usually hired to value the company and then determine your spouse's share of that value. One way to compensate your spouse for that value is by giving him or her a larger share of money from another asset, such as the marital home or retirement accounts, ensuring that you retain ownership over your company. In other cases, there may not be enough money to offset the value of the business, in which case, granting some degree of ownership or possibly selling the business might be necessary.

How do you value the business?

Though businesses are valued using standard accounting practices, the process can sometimes become contentious, given that both sides may disagree greatly about the true worth of a company, particularly more valuable ones. Though the spouse who owns the business might feel like he or she knows best what the company is worth, it's often the case that an expert will need to be hired to provide an impartial or objective estimate of the value of the company. However, unless the parties are able to agree on the value, the Family Court judge will ultimately decide what the business is worth and what happens to it.

How do you find an attorney familiar with business issues?

Not all divorce attorneys are competent to handle cases involving business valuations – far from it. Valuing medical practices, family businesses, law firms, or other companies is a complex process, and there are many ways that an inexperienced attorney can harm your case. Ben Stevens is a Fellow in the prestigious American Academy of Matrimonial Lawyers, and he has an undergraduate degree in financial management with a minor in accounting. He has handled many complex divorce cases and worked with business valuation experts all across South Carolina. If you or your spouse have an interest in a business or professional practice, request a consultation with Ben to discuss your divorce or separation case before it's too late.

Source: “Business owners and divorce,” by Christopher Macturk, published

About the Author

J. Benjamin Stevens

Senior Partner


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