Which party wants to part with the business?
In a lot of cases which I—and you—work, the husband is a business owner. The wife, financially, is the out-spouse/not the main earner.
Along comes divorce. Time to divide the business. Or try to!
I know I’m generalizing here, but more often than not, the husband does not want to divide the business. He thinks of it as “his.” After all, he was likely the one who built it from the ground up.
But if he wants to keep the business, he needs to offer the wife a different asset that’s equal to half of that business. And that’s when it gets tricky, even for an expert like me—and I’m a CPA, a CERTIFIED FINANCIAL PLANNER® professional, and a Certified Divorce Financial Analyst® professional.
(Realistically, most women in situations like this don’t really want to own half of the business—especially if that means having a hand in running it… and continuing to work with their ex- every day. Not fun.)
So the husband could give her cash. But there’s often not enough cash around to do that. There can be other investments. There can be real estate.
But if there aren’t enough of those, it often comes to the next choice: The husband can offer the wife an equalization with payments over time, as an offset, to equalize the settlement.
As I’d said, it gets tricky. And it also gets extremely case-specific; there is no one blanket solution for this.
Case in point: I’m working on a case, right now, in which the husband is a part owner in a business that’s worth $30 million. There are two other owners.
Sounds real simple, right? His share is worth $10 million; he owes the wife $5 million.
If only it were that easy. In the real world, he’s a minority owner in this business. He lacks the power to control, sell, or liquidate the business; the majority owners control that. Lacking the cash to buy out his wife, we’re negotiating payments he can afford… with reasonable interest.
Why? Because cash now is worth more than cash in the future, and he lacks the former. Given the numbers here, it could take him decades to pay this off.
What, then, is the interest rate we’re requesting? Well, that’s complicated, too. It depends on the wife’s age, her time horizon for retirement, and her risk appetite at her age. I use these factors to show what a reasonable portfolio for her would return, and help her attorney negotiate for that.
As I’d said, it’s all very case-specific. And I’m not getting into the details of health insurance, 401(k)’s, and business valuations, which 1) toss more wrenches into these gears, and 2) are so important, that I’ll be devoting another article just to them.
Bottom line: You handle the law. Lean on me to handle the financial side. Contact me today and let’s get started.
