Facing a divorce is hard and it can be especially hard if you own your own business. Separating business assets adds an additional layer to the already painful process. Regardless of whether your partner is involved in the business, a small business can be technically considered “marital property,” and is subject to the same scrutiny as your other shared assets. However, if your ownership interest was obtained before the marriage, your business may be considered separate from your marital assets.
Determining the Value of Small Business As Marital Property
Let’s say a spouse is entitled to some part of the business, how does one calculate their interest in the business? There are three different methods:
The asset method considers the fair market value of all assets and other liabilities under the business.
The market perspective examines similar businesses in the industry and determines the value of the company based on the price of traded companies and the businesses’ total sales.
The income perspective utilizes a line-by-line analysis to determine the amount of income that a particular group of assets brought in over a specific period of time. It measures the cash flow of a business and divides the capitalization of its earnings. The projected earnings of the business are then utilized to determine its value. This evaluation is extremely valuable to avoid giving away more than divorce court orders.
Tip: Tax Transfer Rule
Any dividends, equity, and cash to be divided between divorcing parties are examples of assets that could be untaxed under the Tax Transfer Rule. This way any gains made through fracture of assets will not be seen as immediate income taxable for that year.
“How Much Is Too Much?” Hint: We Can Answer That!
In these situations, someone with expertise who can take a more trained eye to the financial history, assets, and liabilities to make certain the calculation of the overall value is correct. Special attention will also be paid to ensure that each spouse is receiving no more and no less than the amount determined by the court. With larger asset division, it is very common for independent investigators to be called in and use their skill set to do a deep dive in the books in order to arrive at the appropriate evaluation.
Seeking a professional opinion on these matters will help avoid the emotional burden from a failed marriage becoming even worse. It will also ensure that your future is protected going forward. If you have any questions or would like advice on hor to handle a messy divorce, give us a call. We are here for you. Schedule an appointment today at our Belle Chasse or Luling offices:
7822 Highway 23 128 Lakewood Drive
Belle Chasse, LA 70037 Luling, LA 70070
(504) 433-5122 (985) 785-1470