The divorce of a business owner may cause serious complications, not only to the individual but also to the business. Often, the business is the most valuable asset in the marriage and is also one of the most difficult to put a number on. For the nonparticipating or non-owner spouse, doubt over the appraised value leads to greater conflict, driving up the cost of the divorce as well as escalating tensions even to unintended parties such as business employees and family.
Preventive steps should be taken to minimize the impact of divorce on all parties. These include:
1. Drafting a prenuptial or postnuptial agreement that states whether a nonparticipating spouse has any right to the business in the event of a divorce and, if so, the manner in which the business would be divided.
2. Determining a method for how the business is to be valued. This method may or may not be consistent with already established buy-sell agreements among existing owners. A divorce triggered buy-sell agreement, which specifies valuation methodology and what if any appreciation of the business interest while married is deemed a marital asset should be detailed in the agreement.
While no one likes to anticipate a divorce, proper planning can avoid potential complications.
Leslie Thompson, CFA, CDFA, CPA
Spectrum Management Group