Division of business in a divorce can be a contentious issue. Missouri is a dual property state and follows an equitable distribution policy. For property division, the Missouri court will first classify assets into marital assets (acquired during or after the marriage, or assets that have increased value due to the marriage), which are divided between the couple, and separate assets (that have been solely acquired before the marriage, inherited bequests, gifts or assets acquired with separate funds) that are not subject to division in a divorce. St. Louis divorce attorney explains this in detail.
Division of business in a Divorce
Dividing a business in a divorce is a complicated procedure. Categorizing assets into marital or separate assets presents several challenges. There are many factors that define division of business and determination of the business into marital or separate. They are –
- Date of marriage and date of commencement, investment or acquisition of shares of a business by one or both spouses.
- The source and the amount of funds used to fund the business
- Amount of money contributed by both spouses in the business
- Other non-tangible aspects like amount of time, interest and work put in by either of the spouses towards the business.
While these factors can help define a business as marital or separate, the division is not determined by these factors only.
Valuating a business
Once the business is defined as marital property and a spouse’s valid interest is determined, the court seeks to determine and calculate the value of the business. This determination is done by using either one of the following three methods –
1. Asset formula – Asset-Liabilities = Value
Assets can be categorized into tangible and non-tangible. Where tangible assets include physical (touchable) assets like inventory, infrastructure, etc., non-tangible (non-physical) assets are accounts receivables, patents, goodwill, etc. However, the asset formula cannot be used for unrecorded assets and liabilities and the method is often used for smaller businesses.
2. Market Approach – The market approach compares the business to other similar businesses that have been sold in the market. The market approach however can pose to be a problem if no ‘similar’ sold businesses are available for comparison.
3. Income Approach – The income approach is a commonly used method where formulas and historical data are used to predict cash flow and business profits. In the income approach also calculates future benefits and rate of returns and risks.
While the value of small businesses can be evaluated by both the parties and then divided, bigger businesses with complexities need the expertise of an evaluation expert. These experts, often qualified as Certified Business Appraiser (CBA) or an Accredited Senior Appraiser (ASA), look into the history, assets, finances, and liabilities of the business in order to evaluate it.
For business that have a high monetary value, both the parties can seek to appoint different independent experts. After the experts determine the value of the business and testify their respective findings to the court, if the parties end up in litigation, it is up to the judge to give the final decision.
Get in touch with an experienced and competent St. Louis divorce lawyer for more information.