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People may double dip when dividing a business during divorce

On Behalf of | Dec 12, 2023 | Divorce

Divorcing couples in Wisconsin have a lot to consider. For example, the process of inventorying assets and quantifying marital debts can take days or even weeks to complete. Bigger assets generally require more careful attention than smaller assets. For example, businesses and professional practices may represent more value than any other single asset contributing to a couple’s marital estate. A successful business could have a six or seven-figure value which will directly influence the property division process.

Those negotiating a divorce with a business included in the pool of marital assets will need to watch carefully to avoid a double-dip scenario.

How do people double dip when dividing a business?

One of the most challenging aspects of negotiating a divorce when the marital estate includes a business will be determining what the business is worth and how to share that value fairly. There are multiple methods of establishing a business’s value, and almost all of them will consider the future income of the business. Someone seeking to maximize resources in a divorce will claim their equitable share of the company’s value.

The risk of a double dip stems from the possibility that one spouse may ask for a share of the business’s value using a valuation method that looks at future income and will then also request maintenance. They will base that request on the future earning potential of their spouse, which comes directly from the business and was therefore factored into the business valuation. Someone seeking to retain sole ownership and control of a business or professional practice will need to review suggested compromises very carefully to ensure that they don’t end up unfairly penalized by their spouse double-dipping and claiming future business income more than once.

Recognizing how business holdings create unique challenges and points of vulnerability for divorcing spouses can help people more effectively negotiate or prepare for litigation. Seeking legal guidance to gain a better understanding of concerns that relate to one’s divorce process is generally a good way to start.