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. The state of Mississippi mandates that the division of property within a divorce must be fair and equitable, but that does not always mean equal.
How Mississippi Courts Value Businesses in a Divorce
The first step in most divorce negotiations involving business assets is to determine what those assets are actually worth. Typically, this happens one of three ways:
- 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
Either both parties or the court will appoint an independent third-party appraiser to value all of the assets fairly. This will help build a perspective on the divisible value of the venture. The court will only intervene if a valuation can’t be agreed upon, adding significantly more time to the process than if a settlement was agreed upon beforehand.
Marital vs. Separate Property
A separate determination will be made about who actually owns the business. Was it started by one spouse prior to the marriage? It may be considered separate property and, thus, that one spouse may be entitled to continued ownership and the profits. If it was started by both spouses during the marriage, then the business would likely be split as marital property.
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.
If the parties can’t agree on a suitable plan, another option is to sell the business. In this situation, spouses divide the proceeds of any sale, and this occasionally requires court intervention to move things along towards a resolution. There are strict terms laid out advising who gets what percentage of the profits.
Lastly, although not common, both spouses could continue owning the business after the divorce, which may make sense in high-net-worth situations or when the business proves to have long-term income potential.
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.