Introduction To Business Interests
Should you professionally appraise any business that one of you owns or manages? Yes. The marital community almost always has an interest, even if it belonged to one of you before marriage. The skill and efforts of each spouse during the marriage belong to the marital community, as do all marital community funds contributed to the business.
Businesses, as are assets in general, are valued as of the date of trial. If the business in your case is your personal services, value the marital community interest as of the date of separation; after that, the efforts of the manager-spouse are separate property.
The court usually awards a small business to the manager-spouse. It’s rare when ex-spouses can work together in the business after divorce, even if they were both involved before. Don’t try to remain as a silent partner, with no control over what your ex-spouse does with your money. If you are running a business and find at the outset of your divorce case that the divorce is interfering with your ability to run your business, or your spouse is meddling in the business, see Chapter Nine.
Hire the most qualified business appraiser for the business involved. You may not need a heavyweight if little is at stake and the business clearly has no goodwill value. However, if it’s a valuable or promising business, make sure you have the best expert, the one that the judge is known to rely on or can be expected to rely on. Your appraiser must have the most credibility because the judge may have to choose between two expert opinions.
Your attorney should use an expert recognized in the local courts. The appraiser should have experience in evaluating your type of business. If it’s a unique business, you may have to be creative and use someone involved in a similar business as an expert rather than a professional appraiser.
If it’s your business, you’re an expert! You’re also biased because your business is at stake. You’ll need an appraiser if your spouse’s appraiser comes up with an absurd figure. Itís often wise to see what your spouse comes up with before you hire your own expert. If your spouse runs the business, you and your appraiser must be alert for attempts to deflate the value of the business.
Be prepared for the fact that the spouse running the business is assigned a reasonable salary for the skills and services given to the business. Often, this is different than the salary actually being taken.
Goodwill is the additional income to the business after the manager takes a reasonable salary. The value of goodwill is a frequent area of dispute in business appraisals. Goodwill is the expectation of future patronage based on goods sold or services rendered in the past. It’s the reputation bringing customers in.
Attorney’s fees incurred in protecting and defending income-producing property, such as your business, are tax deductible. Ask your attorney to allocate the amount spent on this and other tax-deductible work on your statement.