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How your family business will be treated during your divorce

You may never have dreamed that you and your spouse would consider divorce, but that day has come. You feel overwhelmed just thinking about the process and are concerned about property division.

To complicate matters, there is the family business. Both you and your spouse had a vision that became a reality. What will happen to the business because of your divorce?

Standard of value

You must have your business appraised, but before that can happen, you must have a standard of value established. In divorce cases, valuing a business usually uses one of two standards: fair value and fair market value. Business appraisers must choose the proper standard; otherwise, the court can dismiss their opinions and the valuation process would have to begin all over.

Understanding the difference

Fair market value is an amount a buyer would willingly pay for a property or business offered by a willing seller. Both parties are knowledgeable about the pertinent facts surrounding the sale and there is no compulsion either to buy or to sell. Fair value, on the other hand, is a figure that is based on use and is set by the court having jurisdiction over the divorce case.

A word about double dipping

Double dipping results from an appraiser determining the worth of a business based on the value of the future revenue estimates indicate it will bring in, a number that may be inflated and far from accurate. Double dipping is the term applied when both property division and the amount of spousal or child support are determined based on future income stream estimates.

Your options

Remember that you have options when it comes to determining the fate of your family business. One of those options is to sell it and divide the profits. Another is to continue your respective roles in the company if you believe you and your soon-to-be ex can get along. Pennsylvania is an equitable division state, and whatever you decide, the ultimate goal is to see your assets, including the family business, divided in as fair a manner as possible.

 

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