Dividing Your Business in a Divorce
With his impending divorce announced recently, philanthropic billionaire Stewart Rahr will be giving away more than his usual share — but this time not to charity. Rahr is facing an enormous settlement with his soon to be ex-wife, who was at his side as he built his company.
In another case, millionaire executive Henry Silverman, the founder of Cendant Corp. and vice chairman at Guggenheim Partners, has apparently failed to convince the court that his innate genius was the sole reason for his financial success. He will be paying his wife of 30 years more than $150 million.
The valuation of business interests for equitable distribution purposes is not always straightforward. Business interests tend to go through intense scrutiny in preparation for divorce. Issues that arise in these valuations include:
- Type of business. Although the numbers may look the same from a cash flow perspective, different types of businesses vary in terms of amount of capital invested, value and percentage of hard assets, and return on investment.
- Distinguishing between separate property and marital property. Valuation of each spouse’s share is strongly affected by whether the business was founded before or during the marriage, whether marital funds were used to fund the business, etc.
- Professional practices and enhanced earning ability. In addition to the value of the professional practice itself, the New York courts recognize as an asset the enhanced earning abilities achieved through a professional degree or license.
Other issues that arise in the valuation of businesses include: division of jointly-owned family businesses and start-ups, third party interests, restrictive buy-sell agreements, unstable market conditions, the valuation of un-exercised stock options, and difficulties in valuing intangible assets such as intellectual property and goodwill. Additional complications arise when one spouse provides inaccurate information or fails to disclose all financial information regarding a business. Business valuation experts and forensic accountants are often required to assure that a business is valued accurately during a divorce.
If you are seeking a divorce and you or your spouse owns a business, it is crucial that you retain a family law attorney who has experience with the complexities of valuing a company and its assets. I work diligently and fiercely advocate for my clients’ interests in achieving a fair and equitable division. Call my office today for a consultation.