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Friday, October 22, 2010

Dividing a Business Interest

When one party to a divorce is either self employed or has an ownership interest in a business, there are typically two issue that arise. The first, as discussed in my prior blog entry, is determining that persons actual income for child support and/or spousal maintenance purposes. The second issue, which is the topic of this entry, is to determine the actual value of the business interest for property division purposes.

A business is can not only be a source of income, it is also an asset to be divided. Like any other asset (house, retirement, car, investment, etc.), before we award the asset to one party or the other, we need to know its value.

In many small businesses, especially sole proprietorships with no employees, it it is a service business, it may have no value other than as a job or source of income. There may be the value of the assets, equipment, inventory and accounts receivable, but there is no value of the business itself that would be bought or sold by a third party. Therefore there is no additional value to be considered in the divorce in dividing assets. No one would pay money to purchase your [plumbing, contractor, hair cutting, etc.] business, when they could just open up their own business.

In many other businesses, the business is more than just a job, it is an ongoing concern that would have value to a third party who would pay money to purchase it. If the owner died, the business could still continue and flourish. In these cases, the issue becomes, how do we establish a value. The best way to determine the value of the business is to hire a business appraiser. They are professionals who have expertise in valuing businesses. They will look at the tax returns and bookkeeping records of the business, the type of business and its future, the value of similar businesses, and other relevant factors to determine its value.

Once we have determined a value of the business, it can be added to the spreadsheet to determine a fair and equitable division of all of the assets.

The Renton law firm of Mogren, Glessner & Roti, represents clients in a variety of family law cases. Please visit our web page at Seattle Divorce Lawyers for more information.

1 comment:

  1. It would be sad to have your business greatly affected by the divorce issue.