Going through a divorce can be tough on anyone, but it is amplified when one or both parties is a business owner and is even further amplified when the business becomes the center of divorce negotiations.
Valuing your business
Valuing your business for divorce purposes is vastly different than valuing your business for selling purposes. In Texas, personal goodwill is not a community asset. A business appraiser will have to come in and separate that personal goodwill form the commercial goodwill to get a fair value. For smaller companies, this could make your value quite low because a lot of the value is based on the goodwill of the owner.
When selling a business, the seller (business owner) would be required to sign a non-compete, which holds value. That’s not the case in divorce valuations. The business has to be valued with consideration that the other spouse could literally walk across the street and open up the same business under a different name.
In companies where it appears there is a lot of value, there will inevitably be discounts to valuation for due to marketability. So, there’s a significant difference there from an evaluation standpoint as well.
Handling businesses that are out of state
Cases involving property outside of the state is an interesting issue. The judge has jurisdiction over the couple in front of them but not the property located in other states. What most courts end up doing is ordering a division of property where the person can either sell the property or award a percentage of the property to their spouse. This creates potential enforcement issues because you may have to contact attorneys from other states and ask for a receiver to be appointed to oversee the sale. The division is easy; it’s enforcement of the order that becomes the difficult issue.
Who gets what
It’s very important for the business owner make sure that they have all the information on what assets they own. This is a lengthy discovery process where courts request production of documents, attorneys hire forensic accountant and business appraisers, and other experts come in to look at the operations of the family business. This requires all third-parties to help everyone understand how the business proceeds day to day by explaining profit law statements, tax returns, payables, receivables, and cash flows.
In some cases, there is an imbalance of involvement level between spouses within a family business. If a spouse has not been very involved in the business, they likely won’t be very involved in the business post-divorce. Instead of giving that spouse a portion of ownership in the company, they would typically get some value or other assets to buy them out.
Keep the divorce separate from your business
Even though going through a divorce can be emotional, it’s important to take a step back and let your attorney navigate this process for you. It is unrealistic for you to pay attention to every detail of the divorce instead of paying attention to your business. Attorneys are hired to deal with those very issues. Keep your business thriving and let your attorney communicate only what you need to know.