Here’s how to protect a business from divorce
Originally Published by Jacqueline Newman on Business Insider, June 8, 2015
The number one way to protect your business from becoming a controversial issue in a divorce, is to enter into a prenuptial or post-nuptial agreement which clearly states how a business would be valued and/or distributed in the event of a divorce.
If an agreement is unlikely to be signed by your spouse-to-be, then before you marry, you should obtain an appraisal of the business (to the extent possible) which may at least show what the value was entering the marriage, so any appreciation of the business during the marriage would be more clearly identifiable.
If you are a partner in a business, be sure to have a clearly written partnership agreement that spells out how your interest would valued for purchase by the other partner(s). This formula could be helpful in determining the value of the spouse’s business interest, as something is only worth what someone is willing to pay for it. In my experience, many of my business-owner clients want to avoid appraisals of businesses when getting divorced.
The reason being (beyond the obvious one of not wanting someone snooping around in your books) is that in a divorce, you want the value to be low. However, if you ever want to sell the business in the future, one question a future buyer will ask is – Has there ever been an appraisal of the business done?
Then you have to hand over this low appraisal and explain to the potential buyer that the business is worth more than the written appraisal and you were just trying to undercut your spouse during the divorce. I am sure that explanation will go over well with future purchasers.