Divorce is always devastating, but when a family business is at risk of being dismantled, it becomes doubly so.

This post discusses some of the most common problems business owners find when they are tasked with dividing a business and its assets.

Business Divorce Financial Planning

Business Worth

The most primary undertaking in a divorce is accounting for assets in the marriage. There are houses, cars, and savings, sure, but what about the business?

Determining the value of a business is not as clear cut as some would imagine.

Efforts need to be made to look at the business in three key ways:

  • Financial statements and records
  • Visiting all facilities and locations
  • Speaking with management

Focusing on one of these aspects of the business to the detriment of the others can result in an inaccurate estimation of the business’s worth, especially when one spouse isn’t immersed in operating the business.

Conversely, if one spouse owned the business prior to the marriage, the other spouse may only be entitled to a portion of difference of the current value versus the value at the beginning of the marriage.

Business Assets & Impact on Support Obligations

Some parties in a divorce are justifiably worried that their ex-spouses may “double dip” in terms of receiving part of the business on top of spousal support or other assets.

Fortunately, many states have regulations in place to guide methods of how to apply the valuation of businesses keeping in mind support obligations. Some states allow for the valuation of a business to take into account how spousal support will impact a business’s cash flow.

Others allow spouses to receive both spousal support and a portion of the business, keeping in mind how this impacts the paying spouse’s income post-divorce.

Look Out for Deception

It is tempting for a spouse to deceive the other spouse with regard to his or her finances in order to receive a more agreeable post-divorce situation. Some common strategies include hiding income or playing up liabilities to give the appearance of a decreased business value, which can work unless a valuation expert catches the discrepancies.

Furthermore, tactics such as labelling divorce attorneys’ fees as business expenses can make the other spouse vulnerable to IRS investigation, in addition to decreasing the business interest.

Adjustments can be made to get an accurate estimate of income stream—by eliminating discontinued products from the valuation or using similar companies to set a benchmark.

Because of the added complications business owners face during a divorce, it’s doubly important to select valuation experts with established practices and experience with divorce.

A fair and equitable assessment of a business’s value can set the stage for a less complicated life apart.

Have more questions? Contact Blisk Financial Group today and schedule your consultation.