When one or both spouses own a small business, equitable distribution cases are especially complex. 

Small business have to be valued just like all other assets.  However, you will not likely be able to give competent testimony of the value of your or your spouse’s business.  This usually requires hiring an expert to value the business, which is probably going to cost at least an additional $10,000-$20,000 per business.  So, settlement is a particularly attractive result when businesses are involved.

Valuing a business is, in a nutshell, trying to determine the present value of the future cash flow of the business, plus the value of any physical assets or intellectual property owned by the business.  There are different specific methods of valuation and only an expert can break these down specifically for you and apply them to your business.

One significant consideration that usually lowers the valuation of a business is the fact that in a small business, the owner usually performs a great deal of the labor.  Many owners of business appear to have significant profit; but, if you factor in that the owner has to be paid for the countless hours and effort they put in working for the business, then the apparent profit shrinks dramatically.  In this respect, one needs to consider if the owner of the business hired an employee, or employees, to do everything that he or she does for the business, then how much profit would be left over at the end of the year.  If the answer is none, then the business may not be worth much more than the value of the physical assets and intellectual property owned by the business.  If the answer is that significant profit would still be left over, then the business likely has value over and above its physical assets and intellectual property, and attention or resources may need to be expended to determine that value. 

Some other issues that arise include whether the area of business is or is not likely to see competitors move into the market, whether both spouses serve indispensable roles in the business, how marketable the business would be to potential buyers, whether the business has other owners who have control over the business and whether a spouse has undertaken efforts to conceal the income or assets of the business  These are just a few of the factors that can affect how your business is valued and treated in equitable distribution.

The more information that you can acquire and bring to the table during you initial consultation, the better I can help you understand the road forward in achieving an equitable distribution of your or your spouse’s business.