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What business owners should consider during a divorce

When business owners in Minnesota get divorced, dividing company assets can be a challenging process. The initial step in the process is figuring out how much the company is worth. A valuation professional should be granted access to the company’s financial records and any other information needed to figure out its true market value. Once it has been appraised, it may be necessary to determine how much of the company’s growth took place during the marriage.

Generally speaking, a spouse is not allowed to be compensated twice based on a single asset. Typically, a person is allowed to either receive maintenance payments based on income an owner generates from the business or get compensation as an officer of the company. To determine what may be considered reasonable compensation, an appraiser will have to decide how much revenue the company creates and what type of expenses it has.

It is important that a professional undertake this investigation as a business owner may try to understate income and overstate expenses. Doing so could result in lower child support or spousal maintenance payments. In some cases, adjustments may need to be made to account for irregular cash flow or irregular accounting practices. Individuals are discouraged from counting divorce legal fees as business expenses as this may attract greater scrutiny from the IRS.

To make it easier to divide business assets in a divorce, an individual may want to create a prenuptial agreement. Such a document may allow a business owner to retain ownership of his or her company when a marriage ends. It may also spell out how a non-controlling spouse may be compensated by the company or what his or her role would be within the organization in the event of a divorce.

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