Business Owner Divorce in Wellesley, MA – All You Need To Know

Getting a divorce when you are a business owner or are married to one can be grueling. Aside from the emotional turmoil of divorce generally, business owners or their spouses stand to lose a lot financially and emotionally.

From the business they spent years building or supporting to facing potential tax consequences that could cut into (or erase) their bottom line, it’s crucial to understand the specific issues around what a business owner divorce in Wellesley, MA, could look like. Here’s what you need to know.

Dividing a Business in a Divorce

One of the most critical steps in a divorce involving a business is determining how to divide that business. It doesn’t matter if you were the spouse who built the business, the spouse who supported it by staying at home to tend to the household and children, if any, or a partner in the business; you may be entitled to a portion of it in your divorce. However, what you are entitled to will rest significantly on the value of the business and how much of the value is actually divided in the divorce.

Marital Property in Wellesley, MA, Business Owner Divorce

Under Massachusetts law, all property is considered “marital,” whether owned jointly or individually and whether acquired before or during the marriage.

However, whether a business will actually be divided depends on a couple of main issues. First, you must determine whether the business has value beyond the income it generates for the owner. If the owner is running a small operation and the business is unlikely to have value in the open market, it’s unlikely to have value as an asset in divorce.

Second, regardless of the value of the business, the length of the marriage and when the business was started are also significant factors. If the parties were only married for a year or so, the business is much less likely to be divided in divorce. Moreover, if a business was started once the parties were already separated financially and at the end of the marriage after the divorce was already filed, there’s a lower risk it will be included for division. That said, each case must be evaluated individually to account for the facts and nuances.

Given the nuance involved in business owner divorce, it is helpful to have a Massachusetts divorce lawyer with the skills and experience to accurately determine whether the business has value beyond the income it generates for the owner and how much of that value is likely to be divided in divorce. Consult a Wellesley, MA, divorce lawyer to learn more.

Business Valuations in Wellesley, MA, Business Owner Divorce

If a business is likely to be divided, the next step is figuring out its actual value. There are several factors to consider in creating an accurate business valuation. This step will be important in asset division, including whether you can offset the value of your interest in the business against another asset in your divorce. Those factors may include the business’s:

• Capital
• Market value
• Value of future earnings
• Goodwill (depending on the type of business)
• Company management

It is worth noting that the party primarily responsible for running the business usually keeps it. But, depending on its value and the value of other business assets, a buyout may become part of the divorce settlement.

A lawyer well-versed in divorces among business owners will not only know the right professional/expert to help you value a business, but they will also be skilled in negotiating with an uncooperative adversary.

Preparing for a Business Valuation

A business valuation won’t always be required, but when it is, preparing for it is advisable since it can help the divorce process run more smoothly. Your Wellesley, MA, divorce lawyer can guide you on whether you and your spouse should hire a single expert to conduct a business valuation or hire your own. This will depend on the specific circumstances of your case, including whether your divorce is a high-conflict divorce. Hiring one valuation expert where appropriate, typically a forensic accountant, can save money in a divorce.

Valuing a business can become more complicated and lengthy if one spouse, often the business owner or the spouse more involved in the business, is not forthcoming with information. This will inevitably cost both spouses in time and legal fees, and it can delay the process and ruin the reputation in court of the party who is not being cooperative. Therefore, cooperating is the best strategy, even though you may be tempted not to.

Appraisers may request tax returns from the last three years, business bank statements, and recent profit and loss statements, among other records. Thus, organizing your finances as early as possible and keeping them organized is a smart strategy. Up-to-date information is especially critical given how fluctuations in market conditions can impact figures.

What you should not do is try to manipulate the business’s numbers. In particular, be careful about making substantial and unnatural changes to your business to decrease its value or your income in anticipation of or as a reaction to a divorce. Remember that the other party may (and likely will) hire an expert to analyze your and the business’s financials.

If caught engaging in illicit practices, the court may penalize you. The same holds if the court sees that your income has been suspiciously reduced; a judge may still find that you have the capacity to earn more money and attribute that income to you, treating you as if you earned the higher amount.

Tax Consequences of Dividing a Business in a Wellesley, MA, Business Owner Divorce

Dividing a business during a divorce can raise tax questions that business owners in Wellesley, MA, wouldn’t ordinarily have to consider at that time. You will thus want to check that any business transfers initiated due to your divorce will not trigger a gift tax, transfer tax, or other taxable gain. When it comes to taxes, timing is critical, and a lawyer who understands what dividing a business in a divorce entails will know how to time these transfers appropriately.

Protecting a Business in a Business Owner Divorce in Wellesley, MA

If you are contemplating marriage or you are married and contemplating divorce, you may be wondering how you can protect your interests in a Wellesley, MA, business owner divorce. Preventative measures, such as shareholder agreements and prenuptial agreements, can streamline business valuation and division during a divorce.

A shareholder agreement, for example, can establish guidelines for dividing a business in the event of a divorce. Prenuptial agreements can also outline business divisions. Ideally, a prenup should be drafted early and updated regularly to protect both spouses and prevent surprises.

Contact Our Wellesley, MA, Team of Divorce Attorneys to Protect Your Business Assets in Your Divorce

Dividing a business in a divorce should allow both spouses to receive their fair share while protecting the business so it survives post-divorce. At Farias Family Law, our team of Wellesley, MA, business owner divorce lawyers has experience handling complex issues for business owners and their spouses. This includes business valuations, property division, and associated tax consequences.

Our diligent lawyers understand how much a business means to those who have built it and how both spouses have sacrificed to get their business to where it is today. We work hard to protect our clients’ interests — whichever side they are on — and can do that for you. Contact our Wellesley, MA, business owner divorce legal team today.