Do I Have To Give My Spouse Part Of My Business In Our Divorce?

asset division, business planning, divorce and assetsWhen spouses are going through a divorce, one thing that always must be addressed is property division.  However, when one or both spouses own a business, or even have an interest in a business, property division can be much more complicated.  A common question spouses ask is: Do I have to give my spouse part of my business in our divorce?  In Massachusetts, the short answer is No, but the answer isn’t that simple.

Under the property division statute in Massachusetts, Massachusetts General Laws chapter 208, section 34, the Probate and Family Court must consider the following factors in dividing the marital estate:

length of the marriage, the conduct of the parties during the marriage, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties, the opportunity of each for future acquisition of capital assets and income, and the amount and duration of alimony, if any, awarded under sections 48 to 55, inclusive. In fixing the nature and value of the property to be so assigned, the court shall also consider the present and future needs of the dependent children of the marriage. The court may also consider the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates and the contribution of each of the parties as a homemaker to the family unit

Also, the appellate courts have routinely stated that property division includes any assets of each spouse, regardless of whether the assets are titled in only one spouse’s name, in both spouse’s name, or in one spouse’s name jointly with another individual.  This typically means that a business interest, even if it is only in one spouse’s name, is a marital asset that will be divided one way or another.

However, the next step is to determine how much that business (or the spouse’s business interest) is worth.  That almost always requires a business appraisal by a financial expert qualified to conduct business appraisals for a divorce.  Many spouses think that this is something their own CPA can do, but oftentimes CPA’s will not qualify as an expert for business appraisal purposes in the eyes of the Probate and Family Court.  Thus, the spouses must either each hire a business appraiser to conduct an appraisal of the business, or the spouses can agree to hire one business appraiser to conduct a joint appraiser.

Once the business appraiser conducts his analysis, he will give the spouses and their attorneys two numbers: 1) the value of the business (or spouse’s business interest); and 2) what is a “reasonable compensation” for that business owner spouse for purposes of calculating child support and/or alimony.  With these two numbers in hand, spouses and their attorneys then have to figure how what, if anything, is the non-business owner spouse entitled to from the value of the business.

This does not mean that the non-business owner spouse will actually obtain an ownership interest in the business.  Rather, the business owner spouse will then have to pay the non-business owner spouse a certain dollar amount for property division based upon the value of the business.  Depending on how much is left in the marital estate (above and beyond the value of the business) this can sometimes be done with a trade off of assets where the non-business owner spouse receives a greater share of the other assets.  However, when there are not enough assets for a trade off, then the business owner spouse typically is given time to essentially “buy out” the non-business owner spouse from the value of the business.  This is typically done in a weekly or monthly installment payments over period of time.  These payments are not considered alimony, but rather property division payments.

The amount the non-business owner spouse receives from the business depends on the factors outlined in Massachusetts General Laws chapter 208, section 34.  The non-business owner spouse is not automatically entitled to 50% of the value of the business.  Depending on the statutory factors, the non-business owner spouse may receive less than 50% of the value of the business.

Thus, in Massachusetts, a business owner spouse does not have to actually give the non-business owner spouse a portion of the business, but the non-business owner spouse will likely be entitled to a monetary compensation based upon the value of the business.

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