Divorce Mediation for Small-Business-Owner Spouses

The questions of spousal support and property division can be a bit complicated when a spouse is self-employed or owns a small business. Spouses are obligated to make full financial disclosures, but you may still have to connect a lot of dots to get a complete picture of an owner-operated business. When both spouses are committed to acting in good faith, however, mediation can yield positive results for much less than the cost of a trial.

Evaluating an owner-operated business

When a spouse is self-employed or operates a business, there are several points to resolve before parties can reach a financial settlement:

What is the owner spouse’s income potential if s/he continues to operate the business? Before you can settle alimony or the division of your property, you should have a good idea of how much income the business is likely to generate for the owner-operator in the future.

Does the other spouse have an equity interest in the business? Often, a spouse’s small business begins as a joint venture, where the “start-up” spouse gets operating capital from the other spouse and builds the business out of their home. The other spouse may also provide labor, supportive services and business expertise to get the venture started. These contributions give the other spouse an equity interest in the owner spouse’s business.

What is a reasonable value of the business? If the other spouse has an equity interest, the settlement should contain a waiver, a buyout or an earnings-sharing agreement. This requires a valuation of the business and a reliable estimate of expected earnings.

Using discovery and qualified experts to facilitate a settlement

Where money is involved, it’s often difficult to tell whether a party is being fully candid. However, an experienced attorney can usually spot red flags that indicate a party might be withholding important information. If the offending party comes clean, you can continue with mediation. If not, you may have to use the discovery process to compel disclosure of the information you need. When that happens, your mediation becomes more complex and you could be headed for a contested divorce.

But, when both parties operate in good faith, your mediation attorney can refer you to a financial expert to perform a detailed valuation of the business. Here, again, mediation is advantageous, because you can share one expert and split the costs rather than each hiring your own and turning your divorce into a contest between dueling experts.

If you’d like more information on how divorce mediation can work for you, call Solutions Divorce Mediation, Inc. at 1.631.683.8172 or contact our Long Island office online.