Module Notes
Business interests represent ownership stakes in a business entity and may be significant assets to be addressed in a divorce. These can be some of the most complicated assets to value and strong emotional ties may make business interests a challenge to address in divorce.
Types of Business Interests
- Technically, owning stock in a company could be considered a business asset (see module on Investment Accounts)
- Business Ownership: individual's or couple’s ownership stake in a business entity; common for an entrepreneur who created a new business from nothing or bought an established business and has taken over management
- Partnership or Ownership Interest in a Firm: ownership in a business entity where two or more individuals share ownership, management, and profits; could be actively or passively involved
- Business Entity for Self-Employment: a business established and operated by an individual for their own benefit and livelihood; business entity may have little to no value if service business (like a consultant or lawyer)
- Business Investment: investments made by one or both spouses in a business venture with the expectation of receiving returns, such as investing in a startup, or providing capital to an existing business in exchange for ownership or profit-sharing; may entail capital calls where more investment is needed
- Real Estate Investment: the ownership or partial ownership of real property with the intention of generating income and/or appreciation over time, could be residential or commercial properties, rental properties, vacant land, or real estate investment trusts (REITs)
- Board Membership: may be considered in divorce if there is any inherent value in the position
Depending on the complexity of the business interests, it may make sense to engage a professional, such as an attorney, business valuator or financial advisor.
Valuation considers factors like: income generated, market value, liabilities, and future potential.
Gather and review all related documentation
Valuation methods:
- Asset-Based Approach or Book Value Method: calculates the value of a business by subtracting its liabilities from its assets
- Income-Based Approach: Estimating the business's value based on its income-generating potential
- Market-Based Approach: Comparing the business to similar companies that have been valued and/or sold recently, considering factors such as revenue, profits, and industry trends
Picking a valuation method can be challenging.
- Decide if the business interest will be sold or if it will be kept moving forward
- If kept after divorce, need to decide if one of you will keep it or you will co-own the interest moving forward
- If co-owned, need clear co-ownership agreement to avoid later conflicts (like percentage of ownership, control, future investments, etc.)
- Non-marital or separate business interests typically considered like other property
- If businesses have debt or negative value, typically treated like any other debt
Challenges with income generating business interests because they may be property to be divided and income to look at in cash flow analysis – shouldn’t double count them
The more complex the business assets are, the more likely you should consult with an expert on this matter to make sure you are protected in the final resolutions.
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