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What happens to a business in a divorce?

When a marriage ends, the divorcing couple must decide how to divide the marital assets. Unless otherwise outlined in a pre-or post-nuptial agreement, all assets acquired during the marriage are considered marital assets under Massachusetts divorce law. This includes money as well as personal property, stocks, real estate, debt, and business interests.

The division of assets can be a complex and emotional process, which is why experts are needed, especially when a business is involved. Each spouse typically hires different experts to present the business value according to their individual goals.

There are three approaches used to value a business. The most common approach is the income approach, which attempts to assess expected economic benefits. Historical financial business data is used to calculate projected benefits. The final outcome also considers potential risks that could negatively impact such benefits.

Another approach may assign a total value to business assets; this is known as the asset approach. Tangible assets—those related to the management and operation of the business—include cash, inventory, and equipment. Intangible assets, on the other hand, involve rights to business trademarks, patents, or copyrights. Liabilities will be subtracted from the assets to determine a final business value.

The third approach compares similar businesses which have been sold to determine a market value. While this approach considers recent transactions to evaluate the business worth, transactions involving sold businesses may result in valuations that are too high or even too low for the business in question.

With so much at stake when valuing and dividing large marital assets, such as a business, it is essential to seek legal and other professional guidance to protect your interests during a divorce. For more information about evaluating your business for a Massachusetts divorce, contact our office today.

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