How Is a Business Handled in a Minnesota Divorce?

Generally, a business established or otherwise acquired after the marriage is deemed a marital asset. Even a business established prior to a marriage will likely have a significant marital component of value.  As discussed below, valuation of a business often raises complex issues in a Minnesota divorce. Resolving these issues effectively is particularly crucial when the business is among the estate’s most valuable assets, as it often is.   Family law attorney Kathleen M. Newman of the DeWitt LLP Law Firm uses her 35 years of family law experience to represent clients concerning the disposition of marital businesses.  

How Is a Business Valued?

Unless the spouses agree to the value, an appraiser will value the business using one or more of three primary valuation methods. The book value method calculates the difference between its assets and liabilities. The income method multiplies cash flow by a capitalization factor calculated using data like the business’s age and its goodwill.  Third, the market value method uses recent sale prices of similar businesses to calculate the value of the subject business.  Hiring an appraiser who is skilled and experienced in valuing a business under Minnesota divorce law is critical to get an accurate valuation.  In Minnesota, most divorcing couples use a neutral business valuation expert, due to the expense of a business valuation. However, whether to retain a neutral appraiser or to retain your own expert is a matter that you and your attorney must decide together.

How Is a Business Divided?

Businesses are divided by the rule of “equitable distribution” which is determined by considering: “all relevant factors including the length of the marriage, any prior marriage of a party, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities, needs, opportunity for future acquisition of capital assets, and income of each party” . . .  [and the court] “shall also consider the contribution of each in the acquisition, preservation, depreciation or appreciation in the amount or value of the marital property, as well as the contribution of a spouse as a homemaker.”   Minnesota Statute 518.58, subdivision 1.  However, most businesses are valued at their fair market value, and generally are awarded to the party who has managed the business, and the other party receives either a cash buyout or receives other assets of equal value. Here, skilled lawyering can have a huge impact on the way the business is divided.  The determination of value and the method of division can be complex and requires developing evidence through discovery, including depositions, as well as through expert reports. Your attorney will also want to consider the tax impacts of valuing and dividing the business interest. 

Kathleen M. Newman of the DeWitt LLP Law Firm and her colleagues offer compassionate, skilled services suited to their clients’ unique needs in divorce, including where businesses are involved.   If you have concerns about a business in the case of divorce, please contact us to discuss it.

Sources:

Minnesota Statute 518.58, subdivision 1.

‘Everything You Need To Know About Protecting Your Business In A Divorce,” Forbes (February 19, 2019).