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Adequate planning may help protect a business from divorce

As any Virginia business owner who has been through divorce knows, a business that is not protected by a prenuptial or postnuptial agreement may be up for grabs when it comes to property division. In many divorces, the business-owning spouse is forced to sell it in order to split the proceeds with his or her parting spouse. For that reason alone, entering marriage with clear ideas about who owns an existing business can prevent trouble later.

It is always wise to understand the value of a business at all times, including before and during marriage. A business valuation exercise may help both spouses know the value of a brought into a marriage, and help spouses understand how much value the business has gained or lost during the course of the marriage. In addition, a business valuation can help spouses ascertain the business's value at divorce if the marriage sours.

If a spouse has a business partner that he or she is not married to, then ideally they should have a comprehensive partnership agreement as well as some idea of what the business partner would pay for the business if the other partner had to sell his or her share because of divorce. A lower estimated purchase cost can be helpful at divorce because there is less to split with a spouse. If the value of the business is high, property division is more costly for the spouse who must dispose of his or her part of a business.

So, a lower appraisal value can be a double-edged sword. It may be financially helpful during divorce if the business is not protected by a prenuptial or postnuptial agreement. On the other hand, it can lower the sale price if the owner later wants to sell the business and a potential buyer asks if the business was ever appraised. Explaining the reason for a lower valuation may be difficult.

Source: Business Insider, "Here's how to protect a business from divorce," Jacqueline Newman, June 8, 2015

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