Considerations When Divorcing a Small Business Owner/CEO
In this article, we’ll explore some of the key issues to consider when divorcing a small business owner/CEO.
Assessing the Value of a Small Business in a Divorce
One of the most important considerations in a divorce involving a small business owner/CEO is assessing the value of the business. In Virginia, the value of a business is most often defined as its “intrinsic value,” as defined by case law. Intrinsic value is very subjective; it is what the parties believe the property to be worth. Since the “intrinsic value” standard is so subjective, it is helpful to hire a small business valuation expert to determine your business’s worth. You will want to discuss with your attorney and expert what valuation approach they recommend using and how personal goodwill will factor into the value of your particular small business.
Examining Retained Earnings in a Divorce with a Small Business Owner
Another important consideration in a divorce involving a small business owner is examining the business’s retained earnings. Some small business owners keep a large amount of money in their business rather than paying that out to themselves. They may not be doing this for nefarious reasons; however, for support purposes, it is important to examine this. Your attorney will want to examine the business’s tax returns/your tax returns to determine the amount of retained earnings and how to factor that into the overall distribution.
Navigating Tax Issues During Divorce for Small Business Owners
Especially for sole proprietors (where they report their income and losses on their personal tax return), an attorney must take care in negotiating and addressing tax issues. For example, your attorney will need to look at how the self-employment tax will be paid/allocated during separation/upon divorce and whether the employee has set aside enough money during the year to pay their taxes since they do not have an employer withholding taxes from their paychecks.
Consulting with a Family Law Attorney
These are only a few of the issues small business owners and/or their spouses face in a divorce. An experienced family law attorney can help you assess the issues particular to your family’s circumstances when seeking a divorce.
Emily C. Baker is a family law attorney and partner at Tucker PLLC. For more information on navigating your unique situation in a divorce, contact Emily at ebaker@tuckerfamilylaw.com or call our office at 202-936-3636 to schedule a consultation.
