What happens to a family business when a couple divorces?

On Behalf of | Oct 4, 2021 | Business Valuation |

Divorce is stressful even when a couple has little property that they need to divide. When a married couple shares significant, valuable assets, their divorce will likely become more contentious because of the complexity of the property division process.

Few assets have as much emotional and financial value as your family business. Owning a business may be part of your personal identity, or you may have made major sacrifices during the marriage so that your spouse could start their own professional practice.

If you run a business with your spouse or if you married someone who runs a local company, the business itself could play a major role in your upcoming Massachusetts divorce. Will you and your ex have to split the company as part of the divorce?

Many family businesses are marital property

When you want to determine whether the business is potentially subject to division in the divorce, you first have to establish whether it is marital or separate property.

Under the Massachusetts equitable distribution statute, a business started during the marriage or funded with marital assets is likely marital property that both spouses can partially claim in the divorce. However, a business owned prior to marriage, inherited from family members or subject to a marital agreement may not be at risk of division.

If you know that the business is marital property, then at least its value is likely subject to claims by both spouses. If it is separate property, it won’t be at risk in the divorce.

Proper valuation is crucial to appropriate property division

With some assets, you can estimate their value without really impacting the outcome of a divorce. The true fair market value of your home furnishings or individual wardrobes usually won’t be a major consideration unless there is a big discrepancy between each spouse’s property.

Given that a business represents thousands of dollars, proper valuation is crucial. From current revenue and operating expenses to the depreciation of machinery, many factors influence exactly what the business is worth. You may need professional help to appropriately price the business. Putting a fair and appropriate value on the company is of the utmost importance for ensuring a fair and appropriate resolution to property division proceedings.

Understanding what influences complex property division will help you protect your business or make a claim against the value of the family business in your Massachusetts divorce.