High Net Worth Divorce: What You Need to Know About Business Valuation
Generally, a business or ownership interest can become the subject of litigation in a high value divorce and can be subject to division as an asset by the Family Court. When high value assets are involved such as trust, retirement accounts, family businesses, or vacation properties, equitably dividing marital assets often requires not only a Divorce Attorney, but expert witnesses and investigators who can attest to the true value of an asset.
While the Family Court may ultimately decide what the business is worth, it is important that you retain a Divorce Attorney who can help you properly value a small business and protect your assets from the tax implications that you may be facing. Do not risk going into court without someone to advocate for your rights. Our South Carolina Divorce Lawyers have the experience you need to ensure that your financial future is protected. Call 803.252.4800 to schedule your consultation.
High Value Asset Division and Business Valuation
Some families choose to own and operate their own business independently. In these cases, the South Carolina divorce process becomes even more complicated by the division of the business enterprise and its assets. When evaluating the value of a business or ownership interest in a divorce proceeding in South Carolina, the Family Court will consider the fair market value of the business based, in part, upon the following:
The net asset value of the business
The fair market value for any stock tied to the business
The earning or investment value of the business
The court will also include goodwill in the value of the business. The ability of a business to attract and hold business separate from its owner, known as enterprise goodwill, can be subject to equitable distribution. Personal good will on the other hand, which is associated with the owner’s specialization or relationship with clients, is not subject to equitable distribution.
Common Issues in High Asset Divorce Cases
Separate vs. Marital Identification
Property is classified and divided as marital and non-marital property. Marital property is subject to apportionment by the Court based on equity. Marital property is any asset that is placed in joint bank accounts, any property obtained by the couple, or income earned by the family business. Non-marital property is exempt from apportionment because it is independently held by one of the two parties. It is property that is owned by only one of the parties involved. This can be inherited property, assets obtained before marriage that were kept separate, or property that is agreed upon to be separate by a legal agreement.
Valuation of Assets
Valuing assets is one of the most difficult financial aspects of a divorce. Because both parties have a clear interest in the assets they shared during divorce, each individual is motivated to retain as much as possible. When direct ownership of property is unclear, or when a couple is forced to divide an asset primarily owned or managed by one party, each side may value the asset differently.
Cash Flow Manipulation
Many times there are disputes with the valuation of marital assets, the classification and treatment of assets as marital or pre-marital, and the hidden concealment of income. When a party owns a business, he or she may take a actions to manipulate their cash flow and assets. This is most often seen during a divorce to make the family business appear less successful, therefore the other spouse will receive less money. It occurs when businesses deal in cash, owners can use funds for personal expenses or hold off collecting accounts receivable to make their net income smaller.
Co-Mingling of Assets
An asset that was originally non-marital in nature may become marital under certain circumstances. This occurs when assets are co-mingled, or where the marriage enhanced the value of pre-marital assets. As a result, there can be meticulous attempts to trace the assets. The key factor is how the parties treated the asset. If both spouses it as marital property, the court may determine that asset has become marital property and allocate it as such.
Direct and Indirect Contributions
The Court will divide assets based on a variety of factors, including the direct and indirect contributions of each spouse towards the sum of marital assets. Direct financial contributions to the marriage, such as earned income, are generally measurable and easier to determine. Indirect contributions, however, are just as significant, but harder to measure. Indirect contributions to the marriage include time spent as a homemaker, the contribution of a name, relationship, or reputation to a family business, or a role in financial decision making for the marital estate. The Court will weigh all of these contributions and attempt to determine the most equitable distribution of assets.
Critical Steps to Take in Your High Value Asset Divorce
- Understand Your Assets
First, make a list and inventory all of your valuables. Written proof to verify that certain items were given to you alone will go a long way in ensuring that gift will remain with you. It is equally important to understand all your assets and property. Many clients mistakenly believe that their house is their biggest asset and do everything they can to protect it. But even if your retirement account is less than the value of your vacation home, it could be worth significantly more in the near future. Make sure you consider its value when your assets are being divided.
- Consult a Tax Attorney Early in the Process to Protect Your Financial Foundation
Whether your divorce involves real estate holdings, a family business, or brokerage accounts, the wrong decision could create substantial and unnecessary expenses. Having a South Carolina Tax Attorney on your side will go a long way in helping you develop an individual strategic plan to best suit your needs.
- Make Copies of All Important Documents
While your South Carolina Divorce Attorney will be able to subpoena documents, it will be easier and more cost effective for you to take care of this before the divorce begins. Make sure to copy tax returns, savings and investment accounts, and all your business statements. If you own a family business, do not alter any process in your billing procedures. The smallest change in your records could place your business files under intense investigation. You will also want to be able to prove if certain work was done before or after your divorce or separation.
- Create a Budget
Your lifestyle and income will change substantially after your divorce. You should evaluate your monthly spending habits and track your cash flow. Take into account liquid and non liquid assets to calculate your future spending needs. Take fixed costs like mortgage payments, loan payments, and rental payments into account and make them the priority. Also consider variable costs such as clothing, cell phone usage, entertainment, and dining out. Sometimes it will be necessary to decrease or eliminate these from the budget, but by planning ahead, you can prevent future financial burdens.
- Keep Your Good Credit Rating
There are several steps you you can take to avoid bad credit after your divorce. Obtain a copy of your current credit report and identify all the items that could impact your rating. Take into account whether the Family Court requires your spouse to pay a joint debt, and whether you are still liable for the entire amount until it is paid off. You should also be aware of any liens your spouse has taken against property holdings. It is important to consider whether you should open a new account in your name and close all the joint accounts to prevent the possibility of a bad credit rating if your ex-spouse fails to pay the debt.
- Do Not Let Emotions Cloud Your Financial Decisions
Divorce is a long and draining process. It is easy to let emotions interfere with business decisions. It is important to to maintain all personal bills and business expenses. This will go a long way in preventing your assets from losing value.
Call the Strom Law Firm, LLC Today to Schedule Your Consultation 803-252-4800
When spouses agree to the value of the business, it’s not a complicated process. No matter whether you own, or are seeking your fair share of the business, it is critical that you make sure that the business is valued properly. Our South Carolina Divorce Attorneys have experience dealing with complicated property and business valuations and can help you understand your financial future going forward. Depending upon the financial value of the business, it will likely be important to consider whether to hire a forensic accountant or CPA to help you determine the actual value of the interest at stake. Having a South Carolina Tax attorney who understands accounting, as well as any corresponding tax implications, can ensure that you are prepared and fully understand the financial consequences beyond the final divorce proceeding.
Whether you own a family business, professional practice including a medical or legal office, local restaurants or a bar, we are here to help. Do not risk going into court without someone to advocate for your rights. Our South Carolina Divorce Lawyers have the experience you need to ensure that your financial future is protected.