Separate Property vs. Marital Property
For example, if a party has had a business for 10 years and then gets married and divorces after two years, the bulk of the business is going to be valued as separate property, and the departing spouse (the spouse that is walking away from the business) will likely only be entitled to a fraction of the business value. On the other hand, if a party starts a business and two months later gets married and stays married for 20 years, the departing spouse will likely be entitled to a much larger interest in the business.
How do you determine how much the business is worth?
The valuation standard used in Utah, and most states, is “fair market value.” This is an ambiguous term that is often subject to debate, and is further complicated by the nature of the business. An accounting firm probably has a higher fair market value than a law firm because the accounting firm has clients that use their services over and over, while a law office may represent a client once then never see them again.
So how is fair market value determined? The American Institute of CPAs, the American Society of Appraisers, the Canadian Institute of Business Appraisers, the Institute of Business Appraisers, and the National Association of Certified Valuation Analysts defined the term fair market value as follows:
The price, expressed in terms of cash equivalents, at which a property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, when neither is under compulsion to buy nor to sell, and when both have reasonable knowledge of the relevant facts.
This definition is so subjective parties are usually best served by hiring a professional consultant to value a business. Often times both parties will hire a consultant, if the values are close the court will usually take the average, or if there is a large discrepancy the court will typically appoint a “tie-breaker”, with the costs divided between the parties.
Once the value of the business is determined, the departing party will be assigned a percentage interest, and the retaining party will need to purchase the departing party’s interest outright or set up some kind of payment plan. If the parties can’t figure it out between them then the court can do it for them. As with all divorce issues, parties are almost always better off figuring it out between the two of them then letting the court decide for them.
Does a business license have value?
No matter the size or value of your business, it is imperative that you retain an attorney that is experienced in complex property issues. Call Pearson Law Firm for a free consultation with an experienced divorce attorney that is well versed in property division in a Utah divorce. Call today! 801-888-0991