Will my spouse get half of the business in the divorce?

If you and your spouse own a business, or if you’re self-employed, the decision to divorce presents unique challenges. Businesses are often considered an asset of the marital estate. Under Rhode Island law, property and assets are subject to equitable division. This may or may not be the case when it comes to your business.

One of the first steps you should take if you’re considering divorce is to contact a law firm experienced in working with business owners or their spouses. Your lawyer will help you determine if the business falls under Rhode Island’s equitable distribution law.

The following factors are commonly used to help determine if your business is considered a marital asset:

• The date that the business was established, in relation to the marriage
• The existence of any prenuptial agreements regarding the business
• How the business was acquired (i.e., was it an inheritance or a gift)
• The contribution of the non-owner spouse to the success of the business

If the business is deemed a marital asset, the next step is to get a business valuation. This highly complex process involves your lawyer and oftentimes, an appraiser. Together, they’ll value the business based on tangible and intangible assets, including:

• Real estate and equipment
• Inventory
• Bank accounts
• Intellectual property
• Reputation and goodwill

In a case in the Rhode Island Supreme Court, Kirshenbaum Law Associates established a legal precedent in the State of Rhode Island for business valuation. This verdict recognized the personal goodwill of a business that is separate and apart from business goodwill.

This means that business goodwill is an asset of the business and divisible in a dissolution, providing it is independent of any single individual’s personal efforts that will outlast their involvement in the business.

Once the tangible and intangible assets are calculated, your lawyer can accurately assess the value of the business. This value is based on one of the following approaches:

• Asset approach: The fair market value of all tangible and intangible assets, minus the legitimate outstanding company liabilities
• Income approach: The value of the anticipated economic benefits (i.e., cash flow)
• Market approach: How your business compares to the historical sales of similar businesses

Our attorneys have worked tirelessly to shape the laws surrounding business valuation and are skilled at navigating this highly complex matter.

If you are a business owner or a non-owning spouse considering divorce, contact us today. We’ll put our experience to work to ensure you get the maximum settlement possible.