Small Business and Divorce

by Diana S. Velez Harris on Jun. 08, 2020

Divorce & Family Law Divorce & Family Law  Divorce 

Summary: How your business, even if premarital, may play a part in your divorce.

Regardless of when you started your business (whether it was before the "I do" or after), your business will be considered a marital asset.  That does not, however, mean that the business will be divided in the divorce.  Below is a general summary of the analysis to undertake when you have a business and are considering divorce.

 

1.  First step is to understand how your business was created.  For example, is it a d/b/a "doing business as", an LLC, or a Partnership.  How the business was created and the tax implications thereof will be crucial in this analysis.  

2.  Next is to determine the value of the business.  Most small businesses, such as a d/b/a (doing business as), have very little to no value; usually it is limited to the value of any equipment the business may own.  The value can be determined by agreement, or by hiring an expert to conduct a business valuation.  The cost of the valuation will vary depending on the type of business.  

3.  Once you determine the value of the business, the next step in the analysis is to determine what portion, if any, is divisible in the context of the divorce.  Just because the business may be considered a "marital asset" does not mean that the entire value is divisible in the event of divorce.  Obviously, a business owner of a business that significantly predates the marriage has an argument against including all of the value of such business as a divisible asset in the context of divorce.  On the other hand, a business started during the marriage would most likely be considered to be divisible in full.  

4.  The last step is to determine how the value of the business will be divided within the divorce.  Massachusetts General Laws c. 208, s. 34, details the factors the Court must take into consideration in determining what an equitable distribution of the marital estate means for your particular divorce.  Those factors must be applied to the value of the business as well and include multiple factors to aid in this analysis.

 

It is crucial as a small business owner to have guidance through the process of a divorce.  Negotiations should include your accountant and a thorough analysis of your business so as to minimize the impact of the divorce on continued operations.

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