Owning a family business can be a stressful yet rewarding undertaking. However, if the marriage comes to an end, a new level of stress can come up as far as the future of the business is concerned. One of the options you can explore is buying out your ex from the business.
However, if this is not possible, then you need to understand how the business will be divided according to Massachusetts marital property laws. For this to happen, the business in question must undergo valuation.
Determining the value of the business
If you and your spouse resolve to divide the business, you will need to start off by establishing its accurate value. Some of the approaches the court may use to determine the value of the business include:
- Income-based approach where past income will be used to project its future profitability.
- Asset-based approach where current assets and liabilities will be identified and subjected to valuation to establish your business’ value.
- Market-based approach where the current selling price of a similar-sized business is used to gauge your business’ value.
Regardless of the approach, the court will require documentation to determine the value of the business, so be sure to get the paperwork ready.
Dividing the business
It is important to understand that just because you jointly own the business does not mean that each party will walk away with 50 percent of it. Massachusetts is an equitable distribution state. This means that the court will take a number of factors into account while splitting the business to ensure that the division is fair rather than equal. Some of the factors the court will consider during the split include:
- Each party’s contribution to the business
- Each party’s involvement in the business’ daily operations
- Whether the business was in existence before marriage
- The possibility of one party buying the other out
- How the other family properties are divided
- Each party’s earning potential outside of the business
Property division can be a sticky issue during the divorce. Find out how you can protect your rights and interests while dividing a jointly-owned business during the divorce.