For couples who have been separately or jointly successful in a business venture, one of the most important asset-driven decisions to consider in a divorce is how that business will be divided between both parties.
Mississippi is an “equitable distribution” state, meaning that property and assets are meant to be shared as equitable between the parties in a divorce. Of course, if one spouse entered the marriage with an existing, valuable business interest, the divorce process can become complex.
Generally speaking, business interests acquired or developed before the marriage remains as separate property while those accrued during the marriage are subject to the division of property.
How a Business is Valued
The first step to understanding the process is to put an actual value on the business itself. There are typically three ways to determine value:
- Asset approach: focuses on the value of the company’s assets or the market value of its total assets after taking out liabilities
- Market approach: a comparative approach looking at other public companies or those with available records and transaction histories
- Income approach: value based on the actual income of the business
It will likely be necessary to have an independent third party appraise the value of the business as part of the divorce process to get a true perspective on the divisible value of the venture. If a number can’t be agreed on, it may require the intervention of the court and the court’s own appointed valuation expert, which could take significantly more time than if a settlement was agreed upon beforehand.
What Happens Next
One of the more common resolutions is to have one spouse buy out the other’s interest in the business after the divorce has been made official. This works if the business is available to own by either party and doesn’t require one owner to hold a professional license. There are also a number of tax implications to consider when setting up this plan.
Another option is that the business will be sold if both parties can’t agree on an alternative plan. Spouses divide the proceeds of any sale and this occasionally requires court intervention to move things along towards a resolution.
Lastly, although not common, both spouses could continue owning the business after the divorce, which may make sense in high-net-worth situations.
Another circumstance is when pre-marriage assets or property are rolled into a joint interest during the marriage (e.g. retirement cash put into a business venture). Although the original asset was produced before the marriage, the courts typically recognize this value as part of the marital property, and thus, subject to division.
Business value appreciation accrued during the marriage can also be part of the divorce negotiations if it is viewed that the value created during the marriage did support both spouses or the pair’s standard of living during the marriage.
Certain property awards may eliminate a request for alimony or ongoing support if it is deemed that the value of a certain asset is enough to provide for the child and his or her long-term best interests.
Business interests within a divorce are a particularly sensitive and tricky matter. It’s important to consult a qualified divorce attorney to learn more about your options. Call the Law Offices of Rusty Williard today at (601) 824-9797 to schedule your free consultation and learn more about how we’ve helped Jackson and Brandon clients.