The Law Office of Kurt H King

January 17, 2011

Divorce and the Closely Held/Family Business in Missouri

Filed under: Divorce,Family Law — kurthking @ 6:11 pm
Tags: , ,

When the owner of a business is involved in a Missouri divorce case, issues can be complicated and expensive to resolve.

Perhaps the biggest issue in a case where husband and/or wife own a business is valuing the business–at least the part that is marital property to be divided. In some cases, the business is one where it has little going concern value were the spouse running it to sell (the “business spouse”). Examples may include the solo practicioner lawyer, some small construction companies, and others where the value of the business is really wrapped up in the connections or skills of a key person spouse.

Take a construction company where home builders call the husband-spouse–a person that the builder knows–to have residential or commercial construction work done. If those builders are unlikely to continue to call on that business if the operating spouse stopped working in the business, then the going concern value of the business may well be basically its net value–assets minus debts/liabilities. In this situation, it may make more sense to hire an appraiser to value the business assets, rather than spend $5,000 and likely more to hire a business valuation expert.

In short, if the business is a key man company and the spouse is the key man, then the business may not be worth much more that its assets minus liabilities in a case where the business is sold/liquidated in a divorce case scenario.

On the other hand, many are fortunate to own a business which other people or companies would like to buy for considerable amounts of money. If so, then you can expect to need solid expert business valuation testimony at trial to support what you believe to be the correct value of the business. Don’t plan on just handing all the financial reports to the judge to figure it out. Business valuation takes many hours of time, research, accounting expertise, experience, and training. Most judges do not have that kind of time and training. Even if they do, it is an unfair and unwise imposition on the judge to simply drop it all in his/her lap to do the work for you. This is even more true when the other side of the divorce case brings their expert to give his/her valuation opinion with supporting explanation, but you don’t. Guess which value the court is likely to find as that of the business when one party/side to the case fails to carry his/her burden of proof?

Keep in mind that the business spouse may cause the business to retain extra earnings to lower his income from the business. Or, the business may take on new leases, loans, and debt to confuse as to its true net worth. Or, maybe the business spouse decides to buy business equipment/property to reduce its net cash flow. There are many other such moves that can be made.

Yet another consideration arises where the key person spouse is going to keep on running the business, and the business has a history of substantial income. Then the spouse not in the business may want to claim a serious amount of maintenance–formerly called alimony–to be paid by the busniess spouse. This claim may cause the business spouse to agree to pay a substantial amount–lump sum maintenance–to the other spouse to “buy out” of having to pay months and years of maintenance. (Maintenance set by the judge and not by agreement often runs indefinitely until termination by law–death, remarriage, for instance.) So, you may want to keep this in mind.

Let me close this small post on a large subject by cautioning against just taking your spouse’s word for what the business is worth. First, he/she may not know the correct value. Secondly, in a divorce the business spouse is probably trying to pay you as little as possible for your share of the business. Get your own people to check it out. Otherwise, you may find yourself agreeing to settle for far less than what your half of the business is worth.

There are many angles to this situation, and whole books could be written on the subject. Be careful and have it checked out by persons who are looking out for your best interests. Don’t be naive.

Kurt H. King
Law Office of Kurt H. King
20 E. Franklin
Liberty, Clay County, Missouri 64068

Bankruptcy, Child Custody and Support, Divorce and Modification, Family Law
Personal Injury, Missouri Workers’ Compensation

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