Business Owners and Divorce

 Posted on September 12, 2014 in Divorce

Divorce is a stressful and emotionally trying time for any couple, but it can have added layers of complexity if one or both of the spouses owns a business. If spouses are not aware of these extra wrinkles heading into the process, then they can make for an unfortunate surprise when going through divorce. A recent case involving the divorce of an Oklahoma oil and gas magnate highlights some of these issues.

First, there is the issue of valuing a company for the purposes of division. This will require experts to come in and testify as to the company's worth, and may require expensive financial analysis. The second major issue that business owners face is the loss of control of their company in a divorce. If they are forced to cede equity to their former spouse, or if they are forced to sell their equity interests because they need the cash, they may find themselves without a controlling stake in the company.

Valuing the Company

The first hurdle that business owners have to face will be the valuation of their company during the divorce. This can be especially complex because most companies, unlike the oil and gas company above, are not publicly traded. This lack of an open market on which shares can be bought and sold makes it harder to figure out the actual price for the whole company. Consequently, valuing the company will likely require a person to retain an expert witness who has the skill to understand the different methods available for valuing private companies.

These different methods can be financially complex, but they can be broken down into three basic styles. Some valuators may look at other transactions such as the sale of similar businesses or past sales of the same business. They can then use these sales prices as a starting point to analyze the business value. Others may focus more on the company's income. By examining the company's cash flows, the valuator can make estimates about the total worth of the company. Finally, some valuators simply choose to value the business' assets individually and then subtract out any debts that the company may owe.

Losing Control of the Company

The other issue related to business owners and divorce is whether they can maintain control of the company throughout the divorce. If the company was founded after the marriage, then it qualifies as marital property and both spouses have a stake in it. This requires the founding spouse to either split the company with their soon-to-be-ex or to negotiate a buyout. While many spouses are amenable to a buyout, having no interest in running a company with their ex, pulling together the cash to do it can be difficult. Consequently, savvy business owners should be aware of this possibility and make sure they have the cash to handle the buyout, lest they find themselves selling off equity in order to fund it.

If you are considering filing for divorce and have questions about the nuances of the legal landscape, reach out to a skilled DuPage County divorce lawyer today. Our team of dedicated attorneys stands ready to help answer any questions you may have.