Valuation and planning essential for divorcing business owners

In a community property state such as California, a spouse could have a legal right to half of the other spouse’s business in a divorce. The terms of the split could be negotiated or even guided by the terms of the agreements that established the business. However, the divorce would likely involve the sale of the business or some type of buyout. This process begins with a thorough valuation of the business.

A spouse should obtain the services of an independent appraiser to establish the value of the business. This appraiser could be a forensic accountant or any qualified and impartial professional. The appraiser will study the books closely and calculate the value of equipment and real estate as well as the current revenue and projections for growth. The parties involved in the divorce need to monitor the valuation process carefully because one spouse could attempt to hide revenue or record false expenses to decrease the value.

The timing of a sale or buyout could impact the calculation of taxes. An accountant could advise a spouse about how to schedule the transfer of assets as part of the divorce settlement. In some situations, one ex-spouse will have to create a promissory note that will enable the other former partner to pay off a business buyout. Best practices in this situation require keeping the loan term short and backing it up with collateral.

An individual going through a high-asset divorce might want to work closely with an attorney knowledgeable about family law. The lawyer could research legal options for defending non-marital property or how to interpret a prenuptial agreement.