Creating, purchasing or inheriting a business can significantly increase an individual’s income and personal wealth. Those who run businesses or successful professional practices may have made years of sacrifices to start their companies or keep them thriving even during difficult economic periods.
All of that hard work could potentially be at risk when business owners face divorce. During property division proceedings, an individual’s interest in a business, ownership of a professional practice or stock options could potentially be vulnerable to division.
How can those with an ownership interest in a company protect their holdings during divorce?
The importance of valuation
Spouses addressing business holdings during divorce generally need an accurate idea of the fair market value of those resources. They may need to work with a professional to conduct a valuation of the company.
There are numerous different valuation methods that look at factors ranging from community goodwill and long-term contracts to physical assets. Even the retention of the brand name, if both spouses intend to continue working in the same industry, could affect their future success and income.
Choosing the right valuation method and ensuring the accuracy of the valuation process is a critical starting point for protecting a business during divorce. Spouses need to ensure that they don’t overvalue their resources or factor in future income more than once while addressing the financial concerns of a divorce. They may need to negotiate regarding the valuation method, the value set and control over the company.
Stock options can also be a challenge. Business partners and those working their way up through a company’s hierarchy may have the option of acquiring stock after meeting certain contractual obligations.
Stock options can be difficult to address, as they require a valuation. Given that the stock is likely not yet available to the professional divorcing, they may have to make other arrangements for compensating their spouse based on the fair market value of their stock options.
Working with a family law attorney familiar with the challenges of a high-asset divorce can be of the utmost importance. Business owners need guidance and protection during property division proceedings that could leave their ownership interest in a business or professional practice vulnerable. With the right strategies, business owners and investors can work to ensure a fair outcome while protecting their holdings accordingly.