Business Owners Face Difficult Decisions During Divorce

Owning a small business is stressful in the best of times. The uncertainty caused by the COVID-19 pandemic has not made things easier. Navigating these challenging times has been difficult for our firm’s business clients, but it has been a real headache for our business clients who are also in the midst of a divorce.

Business owners are often surprised to learn that the business they have worked so hard to build up is considered a marital asset. Even if a spouse had no active role in the business, the fact that he or she tolerated its creation and growth means they have a right to a portion of it when the couple splits up.

Why Divorces and Businesses Don’t Mix Well

Handing over control of half of your business to your soon-to-be-ex is not practical, so what dividing up a business for divorce really means is buying out your spouse’s legal interest in the business. To do this, it is necessary to bring in a business valuation expert to set a fair price.

Business valuation experts are typically accountants. They take a close look at the business’s financial records, business forecasts, and other relevant information to come up with a snapshot of the business. They then consult with other experts to come up with a valuation that considers the price the business would bring on the market if it were acquired by a competitor, its liquidity, its income-producing capacity, and the tax implications of an outright or partial sale or transfer of ownership.

The coronavirus pandemic has made this process particularly difficult. Many previously prospering businesses have been temporarily shuttered. Other businesses have seen unprecedented demand that is likely to evaporate when the crisis passes. There is no guarantee that any particular business will be able to weather the current storm and come out the other side in the black. This has led some valuation experts to offer both a current valuation and a “if we were in a normal market” valuation. Determining which valuation is appropriate to use in the divorce then becomes another dispute to resolve.

Once a value is agreed upon, it is time to negotiate a settlement. Some couples prefer to do a lump sum payment so they are officially out of each other’s hair. Others are willing to spread payments out over time to ensure the business does not suffer because of the divorce. In response to the coronavirus pandemic, some couples are delaying the division of the business until a future date when the market will hopefully be more settled. As long as both parties agree that the plan for division is fair, there is really no set way the task must be accomplished.

Attorney Gary R. Swavely is working with business owners in the Reading, PA area to ensure that they can get divorced fairly, even with the uncertainty of the coronavirus pandemic. If you need advice about divorcing during the pandemic, we are here for you. Please contact us today to schedule a free initial consultation.