Baltimore, MD Business Valuation Attorneys

Lawyers Helping Divide Business Assets in Divorce Cases in Baltimore, Maryland

Couples who are going through a divorce will need to address multiple types of assets and other financial issues. When one or both spouses have an ownership interest in a family business, a professional practice, or another type of business, the business may be one of the most valuable and most complex assets that they will need to consider. Determining the value of a business and deciding how business assets may be divided will require a careful legal and financial analysis.

At Silverman Thompson, our attorneys work with clients in Baltimore to address financial matters and other issues that must be resolved before they can complete the divorce process. With our experience in high asset divorce cases, we understand what is at stake when a business is on the table. We can provide guidance on the factors related to a business's value that may need to be considered and the options for handling ownership of a business going forward.

Why Business Valuation Can Be Crucial in a High Asset Divorce

When a business owner gets divorced, the business assets they own will need to be valued before decisions can be made about the fair division of marital property. Without an accurate valuation, a couple will not have a reliable foundation on which they will be able to structure their marital settlement agreement.

In a high-asset divorce, the difference between a well-supported business valuation and a poorly constructed one can be substantial. A business that generates significant revenue, has built up goodwill over many years, or holds valuable assets may be worth far more than the parties realize. If one spouse retains ownership of the business, the value assigned to it will determine what assets the other spouse may receive. If the business will be sold, its valuation will determine the proceeds that the parties may share.

Marital vs. Non-Marital Business Interests

While a business that was founded or acquired during a couple's marriage will need to be included in the division of marital property, a business that was established before the marriage and kept separate from marital finances may be considered non-marital property under Maryland law. However, if the business increased in value during the marriage because of the efforts of either spouse, or if marital funds were invested in the business, a portion of its value may be treated as marital property.

Determining which business assets may be classified as marital and non-marital may require a detailed review of business and personal financial records going back to the beginning of a couple's marriage. Our attorneys can work with forensic accountants to conduct these analyses.

Methods Used to Value a Business in a Divorce

There are several different ways that business valuation professionals may evaluate a business to determine its current value, its expected growth, and other factors that may influence the value of owning the business.

The Income Approach

A business's value may be determined based on its capacity to generate income in the future. The valuation may consider the business's earnings and expenses, potential risks, and the expected return on an owner's investment. Cash flow may be analyzed to estimate how a business is expected to grow in the future.

The income approach may be used to value professional practices or other businesses where their primary value lies in their earning power rather than physical assets. For some businesses, personal goodwill based on the reputation, relationships, and skills of the owner may need to be considered.

The Market Approach

A business may be valued by comparing it to similar businesses that have been sold in the same industry and geographical area. By reviewing actual sales of comparable companies and making adjustments based on differences in size, profitability, and other relevant factors, a valuation can provide an estimate of the amount that would likely be received if the business were to be sold.

The market approach may be helpful when there are other businesses that will serve as a comparison. For restaurants, retail establishments, and certain professional practices, there may be data about the local market that can help develop a realistic valuation.

The Asset Approach

The value of a business may be determined by adding up the value of its assets and subtracting debts or other liabilities. This approach can be helpful for holding companies, real estate entities, and businesses with a value that is primarily based on tangible assets.

Options for Dividing Business Assets

Once a business has been valued, a couple will need to make decisions about how it may be divided along with other marital assets. The options for addressing business ownership include:

One Spouse Buys Out the Other

When one spouse wishes to retain ownership of their business, they may negotiate a buyout. The owner-spouse will pay the non-owner spouse a sum representing their share of the business's value. They may choose to make a cash payment, or they may offset the value of the business with other marital assets. For example, if a business is valued at $600,000, and the non-owner spouse owns an equal share of the business, the owner-spouse might retain the business while the non-owner spouse will receive other marital property with a total value around $300,000.

Selling the Business and Dividing the Proceeds

When neither spouse wants to retain ownership of a business, or when a couple cannot agree on a buyout arrangement, they may decide to sell the business and divide the proceeds. This may help avoid disputes about the value of a business, and it can provide both parties with funds that they can use to address their financial needs after completing their divorce.

Continued Co-Ownership

In cases where both spouses have played active roles in a family business, and they can maintain a functional working relationship, they may decide to continue co-owning the business after their marriage ends. In these cases, the parties can benefit from creating a clear operating agreement that defines each party's role in the business, the compensation they will receive, and their decision-making authority. They can also make decisions about what will happen if either party wishes to exit the business in the future.

Contact Our Baltimore Business Valuation Lawyers

If you are a business owner, your divorce may involve complex financial considerations. You will need to make sure the business will be valued correctly, and you will need to make decisions about dividing property while protecting your financial interests. The lawyers at Silverman Thompson can help provide guidance on the best ways to handle these issues, and we will work with you to achieve an outcome that will meet your ongoing needs. Contact our Baltimore, MD divorce and business valuation attorneys at 410-385-2225 to schedule a consultation.