When a party to a divorce is the major owner of a closely-held business or sole proprietorship, the assets, expenses and overall valuation of the business will likely become the subject of discovery and disclosure. There are steps that can be taken to mitigate some of the effects of its inclusion in the divorce discovery procedure but without careful planning and preparation, your business could be adversely affected.
According to the Wisconsin Lawyer, the Official Publication of the State Bar of Wisconsin, valuing a business during a divorce requires “extra care.” If possible, before the divorce you can obtain an accurate valuation of your business, make necessary expenses, audit your bookkeeping and records, hire all necessary employees and provide funding for deferred compensation and retirement plans.
When the complaint for divorce is filed, as the business-owning spouse you should make an immediate request of the court for the application of a protective order regarding sensitive information about the business, which is not relevant to the divorce. Otherwise, during the divorce discovery process, sensitive and confidential information, including trade secrets, may be inadvertently disclosed. With a protective order in place, you alert all parties and their attorneys to the fact that confidentiality is especially important to avoid preventable devastating effects.
Often in a divorce, the spouse who does not own a business will prefer a valuation that is higher than lower. Such a valuation will allow them to obtain more of the marital asserts because you will need to retain business assets to run the company. Since it is so difficult to put a value on a closely-held business or sole proprietorship, obtaining a valuation in advance of divorce can be helpful for a more equitable division of the property. Before divorce, you may also consider putting the business up for sale in an attempt to obtain an accurate market value.