Business owners and their spouses involved in a pending divorce should consider various issues specifically related to business ownership. Here are a few of such considerations:
1. The Automatic Restraining Order under Massachusetts Supplemental Probate and Family Court Rule 411 goes into effect upon the plaintiff’s filing of the Complaint for Divorce and the service of Summons and Complaint upon the defendant. Accordingly, business owners can be restrained during the divorce from dealing with business interests, unless his or her activities fall within certain permissible categories.
2. Business owners must disclose business income and the value of their business interests on the Financial Statement required under Supplemental Probate and Family Court Rule 401. The process of business valuation is complicated. There are various methodologies, and the testimony of an expert witness may be required.
3. Beware of “double dipping” in relation to a business interest, i.e. where a business subject to division as a marital asset is counted twice, once in the context of property division, and again the determination of an appropriate child support or alimony payment.
4. A business owner whose business provides him or her with perquisites may be subjected to the imputation of income for purposes of child support and alimony calculations.
5. Alimony and child support obligations are determined, in part, by the amount of the payor’s income. In the context of a divorce involving a business owner, the payor’s gross income is likely to be an amount different from the gross income reported to the Internal Revenue Service on an income-tax return.
6. A properly drafted prenuptial or postnuptial agreement can override the equitable division of a business between divorcing spouses.
7. Shareholder, partnership, LLC, and/or buy-sell agreements should be drafted with a view toward protecting the business and its owners from the divorce of one of its interest-holders.
8. Often one spouse will keep his or her business interests and offset a portion of its value with other assets in the equitable division of marital assets. Careful attention must be paid, however, to the character of the offsetting assets, the tax consequences related to their transfer or liquidation, and any other associated costs.