For larger marital estates which include diversified assets, business ownership, or complex investment schedules, a host of other issues may arise. For example, if you or your spouse is a business owner, it is likely that business is going to be considered a marital asset subject to division. In this case a business valuation may be necessary to determine the Fair Market Value (FMV) of your spouse’s business or your spouse’s share of the business.
In general, a business valuation is a comparison of the assets and liabilities of the business. Assets and liabilities include real and personal property owned by the business, all cash, accounts receivable, equipment, supplies and other tangible assets.
In some cases, the goodwill of the business is valued as an asset, i.e. the value of the reputation of the business is given a dollar amount. This is especially true with respect to professional practices, considering in 1998, the Kansas Legislature made goodwill of a professional practice marital property to the extent that it is saleable. This goodwill value is included in the overall valuation of the business.
For many businesses or business owners, a detailed forensic evaluation may be required to determine true value and income. In this situation, the business valuation will focus on reviewing profitability, tracing cash flows, determining ownership interests, valuing investments, valuing stock held in trust, identifying deferred compensation or retained earnings and identifying and capturing passive income.
Norton Hare’s dedicated team of attorneys and legal staff are experienced in these areas and have the right tools to serve you and your case. With decades of experience litigating divorce cases involving complex business structures or high-income earnings, the attorneys at Norton Hare have the relationships in place to provide the highest level of expertise in capturing the truth.
Once the business or the spouse’s share of the business is valued the next step is determining a fair, just and equitable division. There are several options here which will likely be dictated by the makeup of the rest of the marital estate. One option is to sell the business and divide the proceeds. Alternatively, one spouse can buy out the other spouse’s share of the business.
For simple example purposes, if the business has a marital value of $500,000, one spouse can pay the other $250,000 for his or her share. Then only one spouse would own the business moving forward having compensated the other for his or her share of same. This can be accomplished via an equalization payment whereby one spouse pays the other cash. Conversely, the value of the business can be offset against the value of another marital asset such as a home, a retirement account, an investment account, or even a combination of other marital assets.
Example: If the parties agree husband keeps the $500,000 business, and, husband and wife also have a marital home worth $500,000, instead of splitting both in half and paying each other the same amount, husband can agree wife keeps marital home in exchange for husband keeping business, leaving no equalization payment to be made. This can also be done using multiple marital assets.
Same example, but let’s say the home is only worth $250,000 and there is also a joint investment account worth $250,000. Husband keeps business, wife keeps home and investment account; no equalization payment. So long as the ultimate division produces equal shares of marital value per party, there is no limit to the number of items which can be used to determine a proper offset.
These of course are simple examples used for the purpose of illustrating the concept. However, many times we see extremely complex and multi-faceted offsets between a whole host of marital property items, plus the inclusion of a high-income maintenance award, which in Kansas is viewed by the Court as akin to property.
With business valuations, or forensic accounting related to income, Norton Hare employs a team of dedicated paralegals who assist the attorneys with financial and property-related discovery tools.
One such employee is our full-time accountant turned paralegal, Mary, who, with her training and experience dives into the books of the business and traces the money.
She has several years of business and financial management experience having worked for some of the most successful and nationally recognized Kansas City based companies.
She is adept at reviewing financial statements, tracing cash flow, calculating deferred earnings, and reviewing tax information.
Her experience assists our attorneys in providing insight into the day to day business operations and standard accounting practices of businesses and also the means by which business owners (especially single-member S-Corporation owners) can hide income through creative write offs, payment of nonbusiness expenses or the use of fictional cash receipts.
In short, her expertise in accounting adds an incredibly important component to the services which the knowledgeable family law attorneys at Norton Hare provide.
If you or your spouse own a business and you believe divorce is inevitable, Norton Hare can help.