Serving Clients in Knox, Blount, Anderson, Loudon, Sevier & Roane Counties

How do we value a business in a divorce?

When you get divorced, the Court must divide your assets and debts “equitably,” which just means “fairly.” Generally, the Court thinks that “fair” means “equal.” Meaning, each side gets half.

It’s not hard to understand that you are probably going to get half of everything you bought during the marriage, or that you are responsible for half the debt. The hard part is figuring out which half you should get.

If you own a business, that is both an asset and your job. You are going to want to get that half. That means you may have to buy your spouse’s share in your business. To figure out the price means you are going to need to know your business’s value.

Business valuations are tricky, so much so that local business valuation firms charge more than $10,000 to do one. Whether you are trying to avoid that expense or get your money’s worth from a business valuation expert, you should start by collecting documents about the business. Here’s a list of what, at a minimum, you will need

· Monthly business bank statements.

-This will show you how much money is actually coming into the company and how much money is going out for expenses.

· Your spouse’s personal bank statements,

-Especially if they have an account you are not on.

· Tax returns for the business.

This will show you who claims an ownership interest in the company, how much money they say they made, how much profit the company claims, how much money in taxes the company pays and whether taxes are being paid on time.

· Operating Agreements or Articles of Incorporation.

-This is the internal company document showing the rights of individual owners of the company.

· Inventory list, if the company has inventory.

When you or your spouse have a business as part of the marital estate, divorce courts are immediately suspicious that the business owner will commit fraud. No one intends this to insult business people. Courts generally believe that most business owners are honest, hard-working people. However, Courts also realize that when people go through divorce, they are under significant financial and emotional distress. That stress can make an otherwise honest person compromise as they work through the divorce.

Signs that stress may be leading your spouse to commit fraud include:

· Your spouse is doing jobs in the company they normally delegate to others.

· There are no company rules or procedures, or else employees don’t know what the rules are.

· People are quitting or getting fired more than usual

· The company appears to constantly be in some sort of crisis

· People are working long hours and not taking vacations or time off.

People rationalize defrauding companies. They’ll say things like:

“I’m only borrowing the money. I’ll pay it back.”

“I’m not hurting anybody.”

“I deserve this.”

The ways people commonly devalue their business are:

-Taking cash advances or “loans” from the company

-Stealing and selling equipment or inventory

-Not paying vendors

-Creating phantom employees or employing family members (or girlfriends)

-Not paying payroll, capital gains, or other taxes

-Writing items off on taxes as business expenses that really are personal expenses

-Co-mingling business and personal bills and accounts

-Depreciating business assets.

Lawyers can hire forensic accountants to determine whether your spouse is stealing from or devaluing the business, and how much money has been lost. But a lot of this legwork is something you can do yourself, quietly, and that will help save your lawyer and forensic accountant time, and you money. It’s also better to catch someone who is committing fraud early, rather than late, to protect your finances through the divorce.

If you suspect fraud, your lawyer has tools to use to stop them. At Held Law Firm, we use tools like:

-Issue discovery. Discovery is a bag full of tools, including written questions that your spouse has to answer under oath, demands to produce business documents or, my favorite, subpoenas issued to the business manager or even the accountant or tax preparer, to get the information you need to catch and stop fraud.

-Offsets – this is where, if you discover that your spouse is defrauding the business, you can still take other assets of the marriage to compensate you for the money your spouse has lost or stolen.

-A Motion for Contempt. When you file for divorce, the Court automatically enters an Order prohibiting people from selling, giving away or borrowing against the marital estate. Especially if they have co-mingled business and personal funds, this will apply to business assets too. We can file a Motion for Contempt, and get a court order requiring an accounting and/or that the business owner be placed in jail until they either provide the accounting or put the money back into the business.

-File a lien. Depending on how the business assets are held, you may have the right to file a document that puts everyone on notice that have of that asset is yours, and if they buy it, the buyer owes you money.

To determine whether any of these tools will work, you are going to need a lawyer. We are here to take your call and walk you through every step! To schedule a consultation or for more information, call us today at (865) 637-6550 or visit us online at