Dividing a Business or Professional Practice

When a marriage includes a business, the divorce includes a valuation, and the valuation is where the money is.

This is true whether the business is a manufacturing company with forty employees or a dental practice with three. It is also true when the business is small enough that both spouses have always described it as barely getting by. Businesses that feel modest from the inside frequently carry substantial value on paper, and the gap between those two perceptions is where women lose the most.

Start with how a business gets valued, because the vocabulary matters.

There are broadly three approaches. The asset approach looks at what the business owns minus what it owes, which tends to undervalue anything whose worth comes from ongoing operations rather than equipment. The income approach looks at the earnings the business produces and capitalizes them, which is usually the most relevant method for a profitable operating business. The market approach compares the business to similar ones that have actually sold, which works well where comparable sales exist and poorly where they do not.

A valuation expert will typically consider more than one and reconcile them. What you should notice is that the choice of method, and the assumptions inside it, can move the number dramatically. Two credentialed experts working from the same tax returns can arrive at figures that differ by a factor that will startle you. That is not necessarily misconduct. It is the nature of the exercise.

Then there is goodwill, which is the most contested concept in this area and worth understanding in plain terms.

Goodwill is the value that exists beyond the tangible assets. Some of it belongs to the business itself. The location, the trained staff, the systems, the recurring contracts, the reputation of the name. That is often called enterprise goodwill, and it is generally treated as divisible property, because it would transfer to a buyer.

Some of it belongs to the individual. A surgeon's personal reputation, a consultant's relationships, the fact that clients come specifically because of one person. That is often called personal goodwill, and jurisdictions treat it differently, in part because it cannot be sold and in part because counting it as property and then also counting the income it generates for maintenance raises a double counting problem.

That double counting question is worth flagging specifically, because it comes up constantly in professional practices. If the business is valued based on the income it produces, and then that same income is used to calculate maintenance, the same dollars can be counted twice. Opposing counsel will raise it. Your side should be prepared for it rather than surprised.

Now the part that affects women most directly.

In a great many of these marriages, the wife worked in the business. She did the books for eleven years. She answered the phones, managed the schedule, handled payroll, covered the front desk during a staffing gap that lasted two years. She was frequently unpaid or paid nominally, sometimes for tax reasons that made sense at the time.

That contribution is real and it is legally relevant, and it is also easy to erase, because there is no employment record documenting it. Write down what you did, when, and for how long. Find whatever corroborates it. Old email, schedules, correspondence signed by you, vendors who dealt with you rather than with him.

There is also the near universal issue of personal expenses running through the business. The vehicle. The phone. The travel that was partly a conference and mostly not. The family member on payroll. Every closely held business has some version of this, and it matters here for a specific reason. Those expenses reduce reported income, and reported income drives both the valuation and the support calculation. Normalizing them is standard practice in a competent valuation and it frequently increases the number substantially.

Finally, the structure of how you get paid, which is where good settlements go wrong quietly.

The spouse who keeps the business usually cannot write a check for half its value, so the buyout gets structured over time. Five years. Seven years. Sometimes ten. And now your financial security depends on payments from a business you no longer have any visibility into, controlled by someone you are divorcing.

If that is the structure, it needs protection. Security interests. Life insurance on the payer. Acceleration provisions if payments are missed. Interest on the unpaid balance. Some form of reporting so you are not entirely blind. These provisions are ordinary and they are frequently omitted because nobody thought to ask.

The behavioral warning is simple. Do not accept his valuation, and be careful about accepting a number produced by an expert he selected and paid. That is not an accusation of dishonesty. It is a recognition that valuation involves judgment, and judgment tends to drift toward whoever is asking the questions.

You are entitled to your own expert. In a marriage where the business is the principal asset, that expense is almost always the highest return money you will spend on the entire divorce.