Dividing A Family Owned Business In A Divorce

When trying to ascertain the value of a business, it is helpful to look at financial statements of the business, reflecting the business’s assets, liabilities, income, and expenses. Tax returns and checking account records also can provide valuable information-sometimes more accurate than the company’s internal financial statements. 

Loan applications of the business (or of the owner of the business) may provide highly valuable information. Businesses and individuals may make “generous” statements about income and assets when seeking a loan. That can be useful for obtaining a loan. It also is very useful to the spouse of the business owner when the spouse wants to show that the business is worth more than the business owner claims when divorce is at issue. 

If there has been a recent good faith offer to buy the business, that, of course, is valuable evidence about the value of the business. In addition, if there is information available about the purchase price of similar businesses, that too is useful. 

Businesses whose customers usually pay in cash can be particularly hard to value, especially if the owner tries to hide income. If the stated income of the business owner does not match the amount of money the parties have been spending over the past few years, proof of the parties expenses compared with declared income can create an inference to the court that the business is worth more than the owner says it is. 

Another source of information about a closely held business may be a disgruntled former (or current)employee of the business. An employee unhappy with the boss may be willing to pass on information about how much money really is made and what the expenses are. 

If the spouse who is not the business owner presents proof about hidden income or inflated expenses, that can be the basis for a greater award of other property, as well as perhaps higher alimony and child support. When seeking to claim that income is greater than what the other party says it is, one needs to be alert for other explanations for the added funds. If the business owner has been meeting family expenses with loans that have to be repaid, the funds from those loans would not be a basis for a larger award of property, alimony, or child support to the other spouse. Instead, the other spouse may receive a lesser amount of property, alimony, and child support, since the business owner is likely to be saddled with the debt that needs to be repaid. 

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