Divorce and the Small Business Owner in Utah

Divorce with a business involved can make property division matters much more complex. After you’ve put in years of hard work to build your company and grow its profitability, dividing a business upon parting ways with your spouse can be an extremely contentious issue. Not only will you have to determine how much of the business is marital property — but you will also need to determine its value and decide how the business assets will be distributed.

When is a Small Business Marital Property?

Utah law follows the rule of equitable distribution when it comes to dividing property in divorce. This doctrine requires that all marital property be divided in a way the court deems fair — which doesn’t necessarily mean equal. Business assets will be considered marital property in a Utah divorce if either spouse’s ownership interests were acquired after the date of the marriage, or the couple formed the business together after they were married.

In the event one of the spouses owned a business before the marriage, it would typically be considered separate property and not subject to division when the spouses divorce. However, in some cases, business interests that are considered separate property may be mixed with marital assets. For instance, if marital funds were used to grow a business that was started before the spouses were married, any increase in value might be considered marital property and be subject to division.

How are Businesses Valued in Divorce?

Before spouses can decide how the business will be divided in divorce, its value must be determined. Usually, a “business valuation” will be conducted to ascertain the value of the company. Business valuators generally use either the income-based approach, the asset-based approach, or the market-based approach.

Importantly, a valuation should not only factor in the profitability of the business, but also its goodwill and other intangible assets. For example, there may be intellectual property and accounts receivables that come into play. In addition, a valuation will take the company’s liabilities and debts into account.

How are Businesses Handled in Divorce?

Spouses don’t need to rely on a judge to instruct them how to divide their business in divorce — they can enter into a settlement agreement outside of court and divide business assets in a way that works for them and their family. Notably, mediation can be a useful tool that can help spouses reach an amicable resolution concerning business division matters. The mediation process encourages open communication and collaboration, allowing spouses to find a mutually acceptable solution.

Specifically, when spouses divorce with a business involved, they may consider the following options:

• One spouse buys out the other’s interest in the business — One of the most common scenarios in divorce is for one spouse to buy out the other’s interest in the business after agreeing on the value of the business. However, a buy-out will only work if the buying spouse has enough funds to satisfy the purchase. Spouses may agree to a structured buy-out and allow payments to be made over a period of time.
• The spouses continue business operations together — Co-ownership of the business may be an option for spouses who are amicable and can continue to run the company together after divorce. This option will only work in cases where the parties are able to have a productive and respectful working relationship.
• Offsetting the business with other assets — An offset allows one spouse to retain their ownership in the business in exchange for other assets of the same value, such as the marital home, bank accounts, or a vehicle.
• The business is sold and the assets are divided between the spouses — If no other options are viable, the spouses may consider selling the business and dividing the assets in divorce. In the event market fluctuations impact the value of the business, spouses might think about continuing to run the company until its marketability improves to increase the payout.

If a prenuptial agreement was entered into before the marriage — or a postnuptial agreement was executed during the marriage — it should dictate how the business would be divided. A prenup or postnup can specify that the business would remain the separate property of one spouse in the event of divorce. It can also clarify each spouse’s expectations, establish the method of business valuation, and help to prevent disputes over the value of the business.

Contact an Experienced Utah Divorce Attorney

Divorce with a business involved can be legally complicated and emotionally overwhelming. It’s essential to have a compassionate family law attorney by your side who can assist you with navigating the process of dividing your business assets and ensure a fair outcome is achieved. Based in Salt Lake City, BartonWood provides skillful counsel and trusted representation to clients for a wide variety of divorce matters, including those involving complex business valuation and division. To learn more about our legal services and how we can help, call 801-326-8300 or contact us to schedule a consultation.