Thursday, March 10, 2016


The good or bad news is the value of your business is different for valuation in your divorce than if you and your spouse were happily married and selling it during your marriage.  If you are happily married and selling your business, you would sell it at an arm's length transaction (meaning no "hanky panky") and the price would be what you as a willing Seller accept from a willing Buyer.  For example:  your name is Mr. and Mrs. Joe and Jane Smith and you may own a restaurant known as Smith's Food and Grille, which you own the real estate of your restaurant.  You have a vibrant business and your husband is the main chef and he is known for his special recipes, and the manager/hostess is your husband's sister, who greets every customer when they come in the door, and therefore your restaurant is known for "personal" food because of your husband, and it's a customer's favorite restaurant because it is where they are known by the owner and his family.  You have agreed to sell the restaurant to another couple who will be taking over with the same plan, except that the wife will be the chef and the husband will be the host.  Your husband and his sister have agreed to work in the restaurant for six months during the transition so all the regular customers get to know the new owner at the door, and the new chef understands the recipes 100% so the food tastes exactly the same.  Therefore, because the building is worth $500,000.00 and based on the profit of the business, you have decided to sell the business for $1,000,000.00. Let's assume you sell the business for $1,000,000.00, you put it in a bank account, a year after that you get divorced, and assuming no "boutique" facts in your divorce case, the $1,000,000.00 is divided 50/50 between the two of you. Your husband received $500,000.00 and you received $500,000.00.  HOWEVER, if you are the wife and divorcing with the business intact, you would think that the value of the business would still be $1,000,000.00 and you would think you're entitled to $500,000.00.  This is INCORRECT.  The reason why is "divorce world" is much different from the "real world", either to your benefit or detriment depending on the particulars of the facts in your case; and based on the facts in this case that "personal" goodwill is what is deemed a non-marital asset (meaning you are not entitled to any of the value of the business related to your husband's personal goodwill versus "enterprise" goodwill, which is a marital asset, (meaning you are entitled to a presumptive one-half of that value).  Because the business is directly related to your husband's personal skill in the kitchen, and his sister would not continue working with any potential new owners (as the sister testified at her deposition) and your husband and sister have stated they would refuse to sign a "non-compete" agreement if the business was ordered for sale.  Further note, it is likely an expert would determine the real property value worth $500,000.00, but the value of the business is worth only the assets themselves (often referred to as "liquidation" value) versus "capitalization" income approach value, and therefore, the operating account, food in the freezer and miscellaneous equipment which is not fixtures, tables, chairs, etc., value at $50,000.00, then the value of the business is $550,000.00 and you would receive only $275,000.00 as the wife versus $500,000.00 if sold and then divorced.  Your husband has received a windfall of $225,000.00. 

This is a perfect example of how facts are different in "divorce world" versus "real world" and how it can be of the utmost importance to seek consultation with a divorce attorney if you feel a divorce may be on the horizon in order to understand what potential future fact pattern is in your best interest (and of course the best interest of your children) at the first sign of marital discord.