Valuation & Division of Business Attorney in Overland Park, Kansas

Assets acquired during marriage quickly develop into marital property, leaving spouses with a headache when dividing assets. In states where I practice law, Kansas, and Missouri, a division of assets is settled by equitable distribution, which is the distribution of property in a divorce.

The division includes property assets such as vehicles, homes, retirement accounts, stock, bonds, and other investments made during the time together.

If you are considering filing for a divorce and trying to understand how your business will be valued and divided, you must consult with a knowledgeable divorce attorney for detailed guidance. At Rundberg Law, LLC, I proudly serve clients in Overland Park, Johnson County, Kansas, and the neighboring state of Missouri. I have helped countless clients resolve divorce and division of asset issues, and I am ready to help you with personalized attention.

Valuing a Business

The first step in divorce when it comes to business ownership, or interest in a business, is to determine the value of the enterprise. There are generally three business valuation methods:

• The Asset Approach: Also known as the “book value” approach, the asset approach centers on the value of both tangible and intangible assets, minus liabilities. The problem lies in valuing the intangibles such as intellectual property and goodwill. The asset approach is thus best suited for small businesses and professional services whereby goodwill and intellectual property do not have a large contribution.

• The Income Approach: This method relies on anticipated cash flow to determine value. The appraiser calculates expected cash flow using past earnings and then multiplies that by what is said to be a capitalization rate. This rate depends on different factors, including the age of the business, the strength of customer goodwill, and industry volatility. The income approach is the most widely used for privately-held businesses.

• The Market Approach: This method is similar to a real estate transaction. The appraiser will determine value by comparing the business to a similar business sold recently. Either business, even of the same type, is not the same. There can be differences in size, sales, profit, and geographic location.

If the business is a sole proprietorship, one of these methods can seek a fair market value. However, if the business is a partnership, LLC, or corporation, matters get more complicated. In a partnership or LLC, the spouse involved in the business will generally own only a share in it. In a corporation, the spouse will hold shares in the corporation. Still, the value of the business will determine share or stock value (unless the stock is publicly traded).

Division of the Business

Again, the type of business determines how the assets are divided. An individual proprietorship can be sold, or one spouse can buy out the other to retain ownership.

Division of interest in a partnership or LLC will hinge on the value of the spouse’s share in the enterprise. That share, depending on the partnership or LLC agreement, can be sold or bought out by other partners (members of an LLC).

In addition, other factors can play a big part in determining equitable distribution. For example, if a spouse possessed the business before marriage, operated the business individually, it is personal property. Even though the income would be subject to any spousal or child support calculation. If the other spouse contributed to the business in any way, then the business could become what is called commingled property, making it divisible in divorce proceedings.

Potential Options

The options for dividing a business asset boil down to three, basically:

• Sell the Business: This is only an option if it’s a sole proprietorship or family business. In the other forms of business ownership or joint interest, you can sell or transfer a share in a partnership or an LLC, and in a corporation selling or transferring the actual shareholder certificates.

• Buy Out Your Spouse: To keep the business, one spouse can buy out the other spouse. Buyout options include relinquishing other assets to compensate for the value of the business, perhaps by turning over more interest in a retirement account or real property jointly held.

• Divide the Business: This would mainly apply to a sole proprietorship or family business. You could just agree to operate the business as joint owners, with ownership percentages to be equitably decided. You could also agree to jointly hold the spouse’s share in a partnership or LLC, or divide the shares in a corporation.