Articles Posted in Property Division

Continued from Part I, Non-Competition Clauses and Valuing a Business in a Divorce.

Part I of these posts addressed general issues in business valuations, and some of the special issues in valuing a business for a divorce. Which brings us to the main topic of these posts, how a buyer’s requiring a non-competition clause as part of the purchase of a business, affects and relates to calculating personal goodwill and the value of the business.

Generally, when someone buys a business, they don’t want the new owner opening up right down the street and siphoning away business. So, a non-competition clause prohibits a seller from doing that for a certain period of time, within a certain geographic area.

One of the significant issues in some divorces is valuing a business operated by one spouse. A business can be a valuable asset, and valuation issues can be complicated and produce a fair amount of dispute.

Before getting into non-competition clauses as part of the sale of a business, and how they relate to valuing a business in a divorce, first a more general discuss of business valuations, and particular issues in business valuation relevant for a divorce.

General Issues

Even though Florida is a no-fault divorce state, issues of fault or wrong-doing often do come up in Florida divorces, regarding time-sharing, property and debt division, alimony and other issues in the case. This post, however, does not focus on fault or innocence in those contexts, but rather on relief that is sometimes available, and responsibility that can arise, when spouses file a joint tax return, and the IRS determines there are problems with the return and comes after the couple.

One caveat to mention at the outset — this post is intended to raise issues you should be aware of and to point you in the direction of seeking tax advice if these issues are present in your case, not to provide any tax advice. I practiced in the area of tax law earlier in my career, but it is not my focus any longer, and tax law, like most types of law, is something that requires specialized knowledge and experience. One of the provisions you will see in many settlement agreements or pre-nuptial agreements, is a paragraph or clause acknowledging that neither party received tax advice from their family law attorney. Many attorneys these days specialize in one area of law.

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A contested, high-net worth divorce in Florida involves an interesting combination of a transaction or case that in many ways resembles any complicated business matter, but in the context of a divorce, where emotions run strong, and where the the legal standard for deciding the property and alimony issues, are basically – what’s “fair” or equitable. The business or property issues in your divorce will be decided in family court, usually in the Judge’s Chambers where family law cases are typically heard, and most likely during the same hearing or trial where children’s issues are decided also. So, the litigation factors of adequately presenting your case to your Judge, and explaining why the positions you are taking on business or money issues are fair or equitable, are important.

A second important component of a contested, high-net worth divorce, is doing the ground work to be prepared and take the guess work and uncertainty out of the case, as much as that is possible. If the value of a business is disputed, and the business seems to have a significant value, retain a highly qualified valuation expert to value the business and give you something you can rely on in negotiations, and if you end up at trial. An expert’s opinion is of great worth also in analyzing and responding to issues that come up as the parties and attorneys negotiate, and attempt to settle a case. For example, the other side may raise an issue, and your expert assists in providing the clear and certain response, e.g. regarding technical pension valuation analysis. This type of back and forth in negotiations can decide an issue, and if your position is correct, convince your spouse that there is significant risk at trial if they move forward with litigating the issue.

Other examples of important areas for utilizing qualified experts, in addition to business valuation, are regarding tax issues that arise in the case, valuing a pension plan benefit, a vocational expert if a party’s income earning capacity is at issue, or the services of a forensic accountant when issues arise regarding the accuracy of amounts on the books for a company, or regarding a party’s income. If a case goes to a trial, the issue will be decided almost certainly based on the testimony presented at the trial. A qualified, trusted expert, presenting testimony solidly and fairly based on the facts in the case, helps a lot.

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