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How much of a business’s value is at risk during divorce?

On Behalf of | Nov 1, 2023 | Divorce |

Some people start a business after achieving a certain level of professional success. They want to turn their connections and experience into a viable stream of income. Others might inherit a business from family members. Regardless of how someone becomes a business owner, their finances and even self-identity will often become strongly connected to the company that they operate. Therefore, it is understandable that many business owners considering divorce in Massachusetts worry about how the end of their marriage could affect the organization that they run.

Many people understand the basic idea that equitable distribution laws entitle their spouse to a fair amount of the marital estate, which might include part of a company’s value. How much of the business might be at risk during Massachusetts divorce proceedings?

Many factors determine a company’s vulnerability

There is no specific formula for fairly dividing a company during a divorce. Instead, the property division statute in Massachusetts requires a fair or equitable division of marital property. To achieve that, spouses first need to identify and value their marital property.

A closely-owned business will likely be at least partially marital property. If someone already owned the company before marriage or inherited it from family members, then they may be able to protect most of its value as separate property when they divorce. However, the use of marital income to invest in the company and the possible unpaid contributions espouse makes to the business can muddy the waters.

Establishing how much of the business is marital property and how much is separate will be one major factor that determines how much of the company’s value is at risk. Setting the value of the company itself is another important consideration. The higher the business’s value and the more equity accrued during the marriage, the more that value may affect the property division process.

Someone intent on preserving their interest in a business may achieve that goal by very carefully valuing the business and negotiating a favorable settlement. Couples can potentially reach terms that might include the business owner retaining the full value of the company in consideration of making certain other concessions to their spouse during the divorce. Alternatively, those who take the matter to court will leave the final determination about both business valuation and how to integrate that value into property division to a judge.

Ultimately, both seeking legal guidance and establishing clear priorities during the divorce process may help someone achieve the best possible outcome during property division proceedings.