What you Need to Know When Splitting a Family Business in Divorce
One of the most important assets to consider when going through divorce is the family business. The divorcing spouses need to figure out whether they will split, sell or divide the family business and this can be tricky, but here at The Family Law Office of James J. Kenny, we not only have YEARS of experience handing high profile divorces with very complicated family businesses, we work with some of the best forensic accountants when it is necessary and Mr. Kenny is an experienced business valuation lawyer. Below are the three most common methods couples use when distributing a family business.
Buying one spouse out of the family business is one of the most common methods used, where one spouse simply buys the other spouse out of the business. An evaluation would need to be done to see what the business is worth and that amount would be split in half to determine what would be owed. The buy out of the family business would only work if the buying spouse has enough cash to pay the selling spouse and otherwise, they might be able to negotiate through other liquid assets. The buying spouse could also consider giving the selling spouse an asset of comparable value in return for keeping the business, but either way, the amount valued has to be paid somehow in order to properly complete the buy out of the family business.
In very amicable divorces, another way to distribute a family business asset is to continue to jointly own the business after the divorce and simply split their profits. Another way a divorced couple could co-own a business is where one spouse continues to run the business and just pays payments to the other spouse to satisfy their share of the marital assets but it is very important that the parties involved are amicable and that the business doesn’t cease to turn a profit.
Sell the Family Business
Another way to distribute a family business is to sell the family business and divide the proceeds. This option can sometimes be difficult if the business is not very profitable and could take a lot of time to find someone to buy it. Also if there is any disagreement over the value it or if one spouse wants to keep it and the other doesn’t, this presents a problem. Depending on the industry, sometimes it’s just not the right time to sell a business due to the fluctuations on the value of that business during that time and choosing to wait to sell it at a later date might benefit the divorcing spouses better.
As with almost everything in divorce cases, there are pros and cons to each of these methods and every case is different, based on the divorcing spouses standing, their assets and their positions in the company. One of our most recent divorce cases where the spouses needed to determine what would happen with the family business, the former wife was the one that handled all of the accounting for the business and due to a not-so-amicable divorce, she withheld the information from her former spouse, making it difficult for him to know how much the business was worth or how much revenue was being made each month. When problems like these arise, our Divorce Attorney, Mr. James J. Kenny, utilizes an extremely experienced forensic accounting team that we have been working with for years, that has experience working with the courts in knowing exactly what will be allowed and what will not be allowed with business deductions. This is only one small example and it is important to note that with so many years of experience, our family law attorney, Mr. Kenny, has helped both sides in divorce cases where a family business is being valued.
Documents that would be needed to value the business or to retain cash flow of the business
- Last three years of tax returns
- Last 24 months of bank statements and credit card statements
- copy of quickbooks
- balance sheets and profit and loss statements
A word of advise from our family law office is; if you know that your marriage is on the rocks or possibly headed for divorce, make sure to get access to all of the documents needed in order to be able to start a business evaluation.
One last thing to keep in mind…When it comes to businesses and you’re the business owner, all assets are valued at the time of trial. So if you separate and don’t get to trial for 3 years, the value can change dramatically. So you can ask the court to allow you to value the business at an alternate date. For instance, if spouses separated in 2016 and don’t do the divorce trail till 2019, they might ask the court for an alternate valuation date because the increase in value might have only been due to time and effort spent on the company since the separation had occurred or vice versa.
Our Family Law Office of James J. Kenny has two offices in the Inland Empire located in Rancho Cucamonga, Ca and San Bernardino, Ca offering an experienced divorce attorney, Mr. Kenny, an experienced associate attorney, Mr. Kelly Price and an experienced paralegal, Mrs. Jimenez-Cory. Mr. Kenny has been practicing family law and all aspects of divorce law since 1977 giving him 42 years of experience and is a “certified family law specialist” so no matter what you are dealing with in your divorce, we can help! Aside from the family business evaluations explained in detail above, our family law office can also help with spousal support, child support, domestic violence, visitation, property division and even prenuptial agreements before the marriage even begins. We proudly represent same sex marriages, custody battles over family pets (as we are pet lovers ourselves), and although we have worked with many high profile clients, we represent individuals and families of all incomes.
So what is the next step? Give our Rancho Cucamonga family law office a call today to set up your consultation! 909-476-2661