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Business Assets – CT

Business Asset Valuation and Property Division in Connecticut Divorce

Experienced Westport Divorce Attorneys advise on valuation of business and division of assets in Connecticut Divorce

One of the most valuable assets to be distributed during a divorce is the value of a closely held or family business or business asset. Whether a business asset is solely owned by one or both spouses or either of them is a part owner of a business asset, the interest will be deemed part of the marital estate, giving the other spouse a claim to receive a share of the value of that interest. The difficulty often arises in ascertaining the value of that interest in order to calculate each spouse’s share. The Westport divorce attorneys at Needle | Cuda represent owner-spouses and non-owner spouses in divorces where a business asset needs to be valued and divided, working to ensure that our clients’ rights and claims are forcefully represented and protected during the divorce process and that each spouse received a fair value of the business.

Division of Marital Property and Assets in a Connecticut Divorce for business ownership (Equity and/or Membership Interests)

Connecticut is an “all property state,” which means that every asset owned by either party at the time of divorce is subject to equitable distribution, including a business asset. During the process of determining which assets fall within the marital estate, Connecticut makes no distinction between property acquired before or during the marriage, nor does it matter who is the title owner of the business.  This includes a spouse’s ownership in a business asset or family business. However, arguments can be raised about how the value should be distributed between the parties.

It is important to bear in mind that “equitable” distribution does not mean equal. It means that distribution is supposed to be fair. There are no bright line rules about that determination. The Connecticut statute place broad discretion in the hands of the trial judge in how that property can be fairly divided. This is one of the most important reasons why legal advocacy and an accurate, thorough, and strategically nuanced presentation on a party’s behalf can make a significant difference in the outcome of a case.

There are over a dozen factors that are to be considered in arriving at what is a fair distribution. Among the factors that can be most critical are the contributions of each party in the acquisition, preservation, and/or appreciation of the asset. These can be counterbalanced by other factors.  For example, in a very short-term marriage where the parties kept their finances relatively separate, the fact that one party brought his or her interest in the business into the marriage may weigh in favor of the other party having much less of a share in the value of that business. However, if the parties have been married for a very long time and their overall finances and family circumstances (i.e., such as children and all the familial roles and responsibilities that flow from them) have become inextricably entangled, then there is a much greater chance the assets division might focus on a nexus of a 50/50 division. There are also some factors, such as cause of dissolution of the marriage based on fault, which could take what would otherwise be a 50/50 division of assets and can lead to a greater distribution share of the assets going to the aggrieved party.

Equitable Property Distribution And Business Assets In Connecticut Divorces

Connecticut divorce law considers all property that the spouses own as eligible for distribution at divorce, including ownership in a business asset (or assets). This means that regardless of when the business was started or in whose name the business is held or registered, the business asset can be split up and distributed when a couple divorces. Still, the question of how the business asset will be distributed will be answered based on whether there is an agreement between the parties or if the court will have to make a decision for them. If there is an agreement and it is valid, the terms for distribution of the business asset can be incorporated into the divorce decree.

For couples that cannot agree, litigation will be necessary. Taking the matter to court will ultimately leave the decision on what happens to business assets up to the presiding judge. While a spouse may ultimately appeal the decision, they may have to live with the court’s decision for the foreseeable future. Connecticut law mandates that when the court is deciding on property distribution, it must be done equitably. To be sure, this does not mean it will always be split down the middle. Instead, equitable distribution is defined more closely to fairness based on all relevant factors. Some of the factors the court may look at when distributing a business are:

  • The duration of the marriage
  • The cause of the divorce
  • The respective contributions the individual spouses made to the marriage
  • Each spouse’s education, earning ability, and
  • Each spouse’s role in the accumulation, preservation, and appreciation of the assets

While no one single factor is controlling, taken together, they will likely form the basis for what the court feels is a just and fair way of distributing the business. It is vital, however, that before a decision on distribution is made, the business be evaluated for its true and accurate current worth. Without this process, a business asset could be over or under-valued and potentially resulting in a spouse receiving an unfair property distribution.

Expert Testimony Supporting Business Valuations is critical to driving leverage for settlement and effective trial presentation in Connecticut Divorce

The first step in dividing a closely held or family business or business asset fairly is to determine its value. Generally, the goal of a such a valuation the determination of a fair market value–which is what the business could be sold for in an arm’s length transaction between a knowledgeable buyer and seller with no duress present. (There is occasionally debate as to whether some other type of value other than fair market value should apply, but fair market value is the prevailing standard in Connecticut.)

One of three methods of valuation is commonly used:

  1. Asset approach — This involves ascertaining the total value of the business asset and reducing the value by the amount of its’ liabilities.
  2. Income approach — The business’s historical earnings, current earnings and projected future earnings are analyzed and used to compute a business value.
  3. Market approach — This method is based upon finding comparable businesses, including publicly traded companies and recently sold private companies of the same size and in the same market. There is then a judgment call applied by the appraiser in terms of comparing the business being valued with the comparable companies.

Needle | Cuda builds experienced teams of professionals and subject matter experts

Needle|Cuda, along with the assistance of experts such as accountants, appraisers, and tax specialists will analyze various approaches, and compare and contrast the results in order to determine the optimal way to represent your position. Often times, concepts like discounting come into play to compensate for illiquidity factors which are often associated with minority ownership (and may pose a greater difficulty in selling a particular share of the business) and must be considered as part of the equation.

Additionally, we may turn our attention to the evaluation of pre-existing buy-sell agreements, when applicable, since divorce courts can consider them as a valuation benchmark for valuing a partner’s share upon his or her withdrawal from the business. And, if there have been any prior valuations or offers to purchase, those may also be significant in determining the value of the business.

Typically, each spouse hires his or her own team of experts. The selection of the experts is very important, because inevitably each expert is called upon to exercise his or her professional judgment to make the leap from the facts to the value they are assigning to the business. That expert’s opinion is a critical element of either settlement discussions or presentation of your case at trial. Our divorce attorneys have a strong network of licensed and accredited experts that we recommend to clients and with whom we work throughout the valuation process.

Owners Compensation is Critical to Business Asset Valuations, Alimony, and accurate Child Support Calculations in Connecticut Divorce

Determining the reasonableness of the business owner’s compensation can also be critical not only to the valuation and division of the business asset, but also the proper calculation of alimony. This involves differentiating between the part of the owner’s income which is derived from the business as an investment, compared to the part of that income which is being paid for the employment role fulfilled by the business owner, such as CEO for example. That likely will involve determining what the reasonable compensation would be to replace the business owner in that role by hiring an outside person, since the business owner usually controls his or her own pay so that is no an accurate measurement; there are any number of reasons why the owner might underpay or overpay themselves. Differentiating the employment/ownership aspects of the income stream can be very important to ensure that the asset is properly divided based on the ownership portion while alimony/child support is focused on the employment portion, without double dipping, so that the same portion of the income stream is not counted for both alimony/child support and asset division. 

Westport Family Lawyers use Discovery Process to Drive Effective Business Valuation Strategies in Connecticut Divorce

Accurate valuations depend on comprehensive and accurate sets of data to support them, which are not always forthcoming in a divorce. Where one spouse is the owner of the business interest, the other spouse needs to use discovery to learn about the company’s health and profitability. Non-owner spouses seek the business’s financial records and tax returns. Further requests may become necessary as the non-owner analyzes the data and spots gaps and discrepancies. Areas inviting scrutiny may include imprecise accounting and unexplained fall-offs in revenue and/or profitability. However, it is important not to use discovery in a way that disrupts business operations or intrudes on sensitive business information. The business owner spouse may need effective protection from an unnecessary, overly broad fishing expedition into the business operations. It also may be important to both sides who they may speak with at the company and how their data sets compare. Where both spouses are owners of the same business and have different roles and focal areas of knowledge about the business, that may still require discovery to ensure that the business valuation expert has a complete picture and that the approach between business partners is handled thoroughly but discreetly. Our attorneys skillfully conduct discovery requests and analysis of business data to attain a precise and complete business valuation. We also defend against discovery when necessary.

Our Experienced Westport Divorce Lawyers Find Sophisticated Solutions and Alternatives for the Division of Business Assets in Connecticut Divorce

Once a business asset is properly valued, it becomes part of the assets subject to equitable distribution, which means determining the fair share belonging to each spouse. That share is distributed using one of these methods:

  • One spouse buys out the other — This is the best way to keep the business running without interruption. If the buying spouse does not have enough cash or other assets available from elsewhere in his or her share of the marital estate, structured payments can be made over time or the buy-out may be financed.
  • The business is sold — A sale provides cash that can be easily divided and the market itself helps demonstrate the value of the business. However, it may be hard to find a third party willing to pay an amount equal or close to the true value of the business during the divorce.
  • Both spouses retain ownership — One spouse continues with business operations while the other receives a share of the profits, based on an agreement spelling out each other’s rights and obligations. This method is rarely employed, as a clean break is often desired in the context of the divorce.

Our attorneys weigh the pros and cons of each scenario and help clients select the approach best suited to the particular situation.

Call our sophisticated Westport Family Law Attorneys to assemble your Business Asset Valuation team and coordinate your Asset Division and Distribution strategy during your Connecticut Divorce

The lawyers at Needle | Cuda understand the issues that arise when a closely held business is among the assets in a divorce. If you or your spouse own a stake in a business, you can trust our experienced team to zealously represent you. Schedule a consultation with our Westport lawyers by calling 203-557-9500 or by contacting us online.





Frequently Asked Questions (and Answers) about asset and property division in Connecticut divorce

Equitable property division is the "fair" distribution of property owned by both spouses—either marital or separate—in the event of a divorce as determined by the court. The critical term is fair concerning equitable property division proceedings. As discussed above, what the court deems "fair" in equitable property division is rarely equal. Connecticut is an all-property state, meaning that all types of property are considered when the court makes its findings. It is important to know the difference between the types of property to be divided.

While a divorce decree could result in a 50/50 split on all marital property, in practice, that rarely happens. In Connecticut, equitable distribution means that the court will consider various factors when they decide how the marital property will be divided. This could result in one spouse receiving the lion's share of the property to balance an inequity in earning power or to provide a financially dependent spouse with the means to become self-sufficient.

Separate property is any property owned solely by one spouse, such as property acquired before the marriage, gifts, or inheritances.  In most equitable division jurisdictions, separate property would be excluded from the court's distribution discretion because property established to belong to one person should remain with that person. However, because Connecticut is an all-property state for the purposes of divorce, even the property which has been proven to be owned or under the control of only one spouse is still subject to distribution. This includes exotic property like art, cars, and other unique or custom items.

Marital property is property obtained by either party while married. This property can include items like cars, houses, or other financial assets acquired while you and your spouse are married. Even assets like retirement funds can be distributed in divorce to the extent that those funds were added to the account while married.

It is unlikely that any spouse will be left without any interest in their 401k at divorce. But because retirement accounts are eligible for "Equitable Distribution" in a divorce, it is possible that a spouse could be forced to part with a portion.

Through the discovery process, your lawyer can demand that your spouse provide all relevant financial information. This may include whether they have a retirement account and which institution services it. Spouses that seek to hide assets may be sanctioned by the court.

For a prenup to be valid in Connecticut, it must meet several requirements. The judge handling your divorce will be responsible for determining the validity of a prenup. However, the divorce attorneys at Needle I Cuda know the law surrounding prenups and will be your best resource in evaluating the potential validity of any prenuptial agreement.

The law in Connecticut does not favor either spouse. A judge deciding who gets the house is bound to follow the law. They are not permitted to favor either spouse when determining what is equitable. Still, a spouse that was the primary caretaker for the children during the marriage can argue that when considering all of the factors, they should remain in the marital home. Spouses must remember that that will not be the only factor considered by the court.

The court may award the marital home to the spouse that is awarded primary physical custody. Still, primary custody is defined as having the children more than 50% of the time. In other words, having primary custody is different from sole physical custody, which would mean one spouse has the children all of the time. In a sole physical custody situation, the spouse caring for the children full-time may be likely to get to remain in the marital home.

Yes, but not unless an order from the court has been obtained or you and your spouse agree that it is best to sell the home--and the sale of your house is incorporated into your final (court ordered) divorce decree. Clearly, before agreeing as impactful as this, you will want to consult with a divorce attorney before any agreement is finalized. Issues surrounding taxes, title, the mortgage, possible liens, and how the proceeds of the sale will be allocated will need to be sorted before a sale is effectuated.

It depends. In short, all property, no matter when it was acquired and by whom, can be divided and distributed upon divorce in Connecticut. This can potentially include a property one spouse owned in full before the marriage. While you may be permitted to argue that certain property should be excluded from the marital estate, the law in Connecticut does allow for equitable distribution of all property of both spouses.

Who will get the marital home after the divorce depends on several factors. If there is an agreement between the spouses on what will happen to the marital home, then that likely will be the result. For divorces where there is no agreement, a judge will decide based on the "Equitable Distribution" factors that must be considered by statute . If there are children involved who are currently living in the home, that may also have a bearing on who will get the home.

While it is rare that a spouse will lose all interest in a business due to a divorce, the business may need to be sold. Still, when this happens, the proceeds from the sale will be distributed between the parties. It is unlikely a business asset will be sold with only one spouse receiving all of the proceeds.

How much the business is worth can be determined through the use of business valuation experts. These professions will look at the business's data and draft reports that will tend to show what the business is worth. Another method is comparing the sale prices of similar businesses within the same industry.

Through a process known as discovery, your lawyer will be able to request all relevant information concerning the business and its financial health. Valuation experts can then analyze that info to paint a picture of the business asset's worth and projected outlook. Once a value is determined, the business asset or the value assigned to the business asset may then be distributed by the court upon divorce.

It depends.  In short, all property, no matter when it was acquired and by whom, can be divided and distributed upon divorce in Connecticut. This can potentially include a property one spouse owned in full before the marriage. While you may be permitted to argue that certain property should be excluded from the marital estate, the law in Connecticut does allow for equitable distribution of all property of both spouses.

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