Protecting Your Closely-Held Business in Divorce Proceedings November 18, 2021

Protecting Your Closely-Held Business in Divorce Proceedings

By Rebekah A. Cline, Esq.

While people don’t enter a marriage anticipating a divorce, it is recommended that closely-held business owners take steps before marriage to protect their business from such an unexpected event, especially because the value of one’s business is typically the largest asset of a marital estate.

If a business owner is not yet married but is engaged or has plans to soon become married, their business assets can be protected from a divorce by entering into a prenuptial agreement – a contract entered by prospective spouses in contemplation of marriage, which defines the value of your sole and separate property prior to marriage. When drafted properly, a prenup has the ability protect a future spouse’s business interest, and any appreciation in value that may accrue during the marriage due to that spouse’s active role in the business.

If a married business-owner did not enter into a prenuptial agreement, and is now involved in or contemplating a divorce, it is important that they seek counsel with a complete understanding of the intricacies of valuing and dividing a business, as well as an understanding of the law regarding the calculation of the business owner’s income for support purposes.

Business owners should also appreciate that there is a divide between Ohio Courts as to whether they are precluded from counting a business’ future stream of income as a marital asset to be divided as well as counting that same stream of income as the business owner’s income for support purposes. This potential double-counting is referred to as a “double-dip”.

Convincing the Court that a “double-dip” is not equitable, or at least mitigating the potential detriment to the business owner spouse, requires close work with business valuators, CPAs, and even forensic accountants to determine the proper value of a company.

There are three different approaches to valuing a business in a divorce, along with several adjustments that can be made, each of which will affect the final valuation. Utilizing the proper approach and adjustments, with the help of a lawyer that knows the ins and outs of a business valuation, as well as how to work with experts, can assist in reducing the risk of the business owner’s income stream being accounted for twice.

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