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Getting Divorced? You Need a Business Valuation

Getting Divorced? You Need a Business ValuationIf you own a small business or sole proprietorship and are considering divorce, the division of marital assets becomes even more important. During this process, spouses identify, evaluate and divide their marital property. For some couples, division of property can be straightforward – typically dividing up things like bank accounts, vehicles and homes. However, in the case of a small business, issues become more complicated. Both spouses have much more to consider and much more at stake.

In determining division of property, the first step is identifying which property is separate and which property is marital. If the business is declared marital property, your next step should be to get a business valuation.

Is your business a marital asset?

Generally, any property acquired before a marriage is considered separate property, and any property acquired during the marriage is considered marital. This means if you owned a business before you got married, it’s likely not be a marital asset, even if it appreciated in value during the marriage. However, if you started or acquired the business during the marriage, it is likely shared property – unless you secured the business through a gift, inheritance or non-marital funds.

However, these scenarios can be more complicated than they appear. You may have established your business before you married, but then you and your spouse invested marital funds into it later on. Or perhaps your spouse was an active participant in helping the business grow. The court might rule the business as marital property, or that your spouse is entitled to equity, even if the business was yours before the marriage.

What is business valuation?

Before a business can be divided fairly, a judge must understand the full value of the business. A business valuation expert can perform this evaluation through several methods. Typically, these methods are:

  • Asset approach. The asset method viewes the business as a set of assets and liabilities. The assets and liabilities are calculated, and difference between the two is the value of the business.
  • Income approach. The income approach calculates the financial benefits the business will bring in the future. This is a risk-based approach, so it requires different and complicated methods of analysis.
  • Market approach. This method means valuing the business according to what buyers would be willing to pay, and what sellers would be willing to accept for a similar business, using market data and analysis.

Dividing your SC business

It is critical to have a detailed business valuation when your business is eligible for equitable distribution in South Carolina. If you and your spouse cannot agree on your own how to divide it, the court must make the decision – whether 50/50, or in some other percentage or settlement.

Contributing financially to, or working for, a business can bolster a spouse’s claim to equity. A spouse might also claim equity if he/she contributed to childcare and homemaking while you ran the business. The rule is, there is no rule, and most decisions are made on a case-by-case basis. You may be required to buy your spouse out, make payments over time or other arrangements.

This is why it is so important to have a proper business valuation, and Holland Law LLC can help ensure the safety of your financial assets. To learn more about our business valuation services, get in touch today. Tom Holland serves clients in York, Lancaster, and Chester Counties, and maintains offices in Fort Mill and Rock Hill. To schedule a consultation, please call 803-219-2630, or reach out through our contact page.