High asset divorces often involve the existence of one or more businesses which may result in a myriad of additional issues.
- Family Law Business Valuations are Different
Family law principles often require businesses to be valued in a special way as if buying out a non-participant spouse as a silent shareholder from an ongoing concern. Therefore, a business which can’t be sold in the marketplace, may nevertheless be assessed as a high value in family law court.
- Retroactive Business Valuations
The business may need to be valued at different points in time such as at time of the parties’ separation or at time of trial.
- Determination of Separate and Community Property Values
The value of a business may have to be divided into both spouse’s separate property, as well as the joint community property. For example, this may be needed where a business is started during marriage (considered separate property), continues to grow during marriage (the added value may be community property), and either decreases or increases in value after separation but before the divorce is completed. These high assets may be attributed to the community or to one party alone.
Cash Flow Available for Support
A party will frequently claim that a business is depressing salaries and/or withholding distributions for the purposes of decreasing a spouse’s support obligations. In addition, a party will often claim the other spouse is running personal expenses through the business and receiving other benefits that should be considered as income for the purposes of determining support.
Protecting the Business as a Going Concern
- Trade Secret Information needs to be protected from being leaked to competitors or a vindictive spouse.
- Confidential information of employees and business owners must be protected to prevent identity theft and liability for invasion of privacy.
- The reputation of the business as a going concern must be protected to avoid damaging good will with customers and loss of employees.
Compensating a Spouse for His or Her Community Property Interest
Both spouses need to be compensated for any community property interest they may have in a business. This can be done by one spouse buying the other out, dividing up the business, selling the business and dividing the proceeds, or having both spouses remain as owners to the business. These options have different consequences:
- Often a business can’t be divided without resulting it its demise.
- Often a spouse does not want a business sold, to avoid losing employment and a way of life.
- Often a spouse wants to be bought out of a closely held business to avoid ending up being a silent partner with no control over future payments/distributions/dividends from the business.