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How a family business can affect divorce proceedings

On Behalf of | Apr 19, 2021 | High-Asset Divorce

As part of a Kentucky divorce, you and your partner must identify, value and divide assets before finalizing a settlement. However, if either of you has ownership in a private business, dividing assets and achieving equitable property division becomes more complex.

According to the American Bar Association, you must determine whether your family business is a marital asset or considered separate property.

Marital and non-marital property

Your family business may be your most significant asset as well as your livelihood. Whether it falls under marital or non-marital property depends on various factors, including the following:

  • The funding source used in starting or acquiring the business
  • The acquisition occurred before or after the marriage
  • The extent of financial and personal contributions by each of you

It doesn’t matter if both of your names are on the acquisition or formation paperwork. If the business meets the requirements for marital property, the court views it that way.

Establish the value

Putting a value on the business is often a source of contention during a divorce. The type of business and industry niche is among the factors that help determine its worth. The primary methods independent experts typically use for valuing a business include the income approach, market approach and asset approach.

Cash flow, cash reserves, intellectual property assets and investments help business appraisers and investment bankers develop a realistic value. Human capital, existing contracts and real estate can increase your company’s worth. If you go to court and each get a valuation, a judge may determine which method is most credible.

In situations where you both want the business; joint ownership may be an option. However, in many cases, one spouse buys out the other. If that is not practical for either party, selling the business and dividing the proceeds may the best option and help you finalize your divorce.