If you are a proud business owner and are getting divorced, protecting your business is most likely a top priority. Our firm has handled many business owner divorces, and we are here to help you, too. Please continue reading and reach out to our experienced Massachusetts divorce attorney to learn more about divorce, how we can help you, and how you may protect your business from your divorce.

Why Massachusetts Business Owners Need to Plan for Divorce Early

It’s important to understand that the courts in Massachusetts, including Bristol, Norfolk, Plymouth, and Middlesex Counties, have broad discretion when dividing marital property. As such, even if only one spouse established a business, the court may determine that some or all of the business interest accumulated is considered marital property and therefore subject to division.

Business owner divorces filed in Bristol County Probate and Family Court may involve complex disputes over the value, asset division, or long-term operations of a business.

Can I Keep My Business After Divorce?

Yes. Many Massachusetts business owners can keep their business following a divorce. However, they may need to:

  • Purchase the spouse’s interest in the company
  • Offset the value of the business with marital assets
  • Negotiate a settlement agreement
  • Implement payment plans
  • Utilize marital or business agreements to reduce claims on the business

The outcome will depend heavily on the unique circumstances of the case and the financial and legal strategy employed throughout the case.

What Is Marital Property?

When someone gets divorced, many of their assets will be up for what is known as equitable distribution. Those assets are marital assets, or assets acquired during the marriage. There are also “exempt” assets, which are assets acquired prior to or outside of marriage.

Unfortunately, if you are a business owner, your business will most likely be treated as marital property and will, therefore, be subjected to equitable distribution.

Massachusetts courts can consider several factors when determining whether or not a business is classified as marital property, including:

  • When the business was established
  • If the business increased in value over the course of the marriage
  • If marital funds were used to invest in the company
  • Whether the other spouse contributed to the success of the business
  • If one spouse sacrificed their career to support the business
  • Whether business income supported the household

It’s important to understand that even a business created before a marriage may be deemed partially marital property if the business value drastically increased during the marriage.

What Counts as Marital Property?

Marital property in Massachusetts may include:

  • Businesses created during the marriage
  • Appreciated business value during the marriage
  • Income earned from the business during the marriage
  • Joint investments in the business
  • Investment and retirement accounts
  • Real estate purchased during the marriage
  • Vehicles and personal property

Separate property may include:

  • Gifts intended for only one spouse
  • Certain trust funds
  • Some premarital business interests
  • Assets owned prior to the marriage
  • Inheritances

What Is Equitable Distribution in Massachusetts?

Equitable distribution is a method of dividing marital assets based on fairness, not necessarily equally. As such, Massachusetts courts will consider a number of important factors when determining how to divide assets between spouses, including:

  • The length of the marriage
  • The income and earning capacity of each spouse
  • Financial and domestic contributions to the marriage
  • Child custody arrangements
  • Debts and liabilities
  • The standard of living established during the marriage
  • Tax implications

Key Factors Courts Consider When Dividing a Business

  • If both spouses contributed to the growth of the business
  • The current, fair market value of the business
  • The liquidity of business assets
  • If the business can continue to operate post-divorce
  • The existing business structure
  • If dividing the business would negatively impact operations

How Will The Courts Value My Business In Massachusetts?

When determining the value of your business, Massachusetts courts will ask you several different questions, and oftentimes may even appoint a financial investigator to make sure that the information is accurate.

You will have to submit various documentation to the courts, including:

  • Business revenue statements
  • Profit and loss statements
  • Tax returns
  • Payroll documents
  • Shareholder agreements
  • Expense reports
  • Contracts
  • Financial statements
  • Business debt and loan information

If you are not truthful or leave out certain details, it may launch an investigation by the IRS. This is unacceptable, and our firm can help ensure you submit all the necessary documentation to prevent such a thing from happening.

Common Business Valuation Methods in a Massachusetts Divorce

Often, business experts analyze the value of businesses using several methods, including:

  • Asset-based valuation
  • Income-based valuation
  • Market comparisons
  • Cash-flow analysis
  • Earning multipliers
  • Goodwill valuations

Depending on the type of business you run, whether it be a law firm, medical practice, or family-owned restaurant, different methods may be necessary based on operations.

What Can Business Owners Do to Protect Their Businesses From Divorce?

There are three primary documents you may use to protect your business.

Prenuptial agreements, drafted before marriage, can state what will happen to your business should you ever get divorced.

Postnuptial agreements, on the other hand, serve the same purpose, though they are drafted after marriage.

Finally, if you jointly own your business with your spouse, you may draft what is known as a shareholder agreement.

Additional Strategies Business Owners Should Consider

  • Keeping all personal and business assets separate
  • Maintaining detailed, accurate financial records for both your business and personal assets
  • Updating operating agreements regularly
  • Hiring a forensic accountant when necessary
  • Conducting routine business valuations
  • Limiting ownership transfers by creating legally binding agreements
  • Establishing a clear succession plan

Contact Our Experienced Bristol County Firm

For over 30 years, The Law Offices of Cynthia L. Hanley, P.C., has provided quality legal support and representation for clients in Bristol County and across Massachusetts. Our firm’s experience eases the stress of clients while providing the legal services they deserve. If you need help through a contested divorce, contact our dedicated legal team for a consultation today.