Minnesota Divorce Law
Minnesota is not a community property state where all marital assets are considered to be owned 50-50. Rather, it is an equitable distribution state. Minnesota law states:
“…the court shall make a just and equitable division of the marital property of the parties without regard to marital misconduct, after making findings regarding the division of the property. The court shall base its findings on all relevant factors including the length of the marriage, any prior marriage of a party, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities, needs, opportunity for future acquisition of capital assets, and income of each party. The court shall also consider the contribution of each in the acquisition, preservation, depreciation or appreciation in the amount or value of the marital property, as well as the contribution of a spouse as a homemaker.”
Minnesota also does not recognize “fault” divorces. Divorce in the state is called “dissolution of marriage” and is based on an “irretrievable breakdown” of the marriage. Neither party needs to cite a reason other than that.
Valuing a Business in Divorce
A business is just another marital asset that is to be valued and equitably distributed. As such, one or both parties to the divorce can hire an appraiser to arrive at a valuation for the business, or they can jointly agree on one appraiser.
There are basically three ways of valuing a business – the asset approach, the income approach, and the market approach.
The Asset Approach: Generally speaking, this approach – also known as book value – is based on the value of both tangible and intangible assets less liabilities. The challenge in this approach is valuing assets such as intellectual property and goodwill, both intangible. Inventory, property, and equipment also can pose valuation challenges. The asset approach is thus best suited for small businesses and professional services where goodwill and intellectual property don’t factor in that much.
The Income Approach: The goal here is to determine a single amount of value in dollar terms based on anticipated cash flow. The appraiser calculates the expected cash flow using the business’s past earnings and multiplies that by a capitalization rate that depends upon numerous factors, including the age of the business, the strength of customer goodwill, and industry volatility. The income approach is the most widely used for privately-held businesses.
The Market Approach: Here, the valuation is determined by comparing the business to similar businesses that have recently been sold. This is similar to what real estate appraisers do to value a home for sale. They can compare size, location, age, and other factors, including nearby school systems. It is not always so easy to determine comparable valuation factors for a business, however. There can be huge differences in size, sales, profit, and geographic location.
Factors to Be Considered in Division of a Business Asset
If the divorcing spouses cannot agree on the division of property and assets and submit a settlement agreement to the court, the court will then weigh many factors into the division of the business and its assets, along with all other marital property.
If the business was being operated by one spouse prior to the marriage, to what extent did the new spouse contribute to the operations of the business? This could be one factor, though the business would still be considered a marital, or joint, asset during the time of the marriage. If the business was started by the spouses jointly after marriage, then this would provide another aspect to the division.
If one spouse ran the business and the other stayed at home to raise a family, that would certainly weigh heavily on the division of the business and its assets and/or future income distribution.
If there’s a business involved, the best approach is for the spouses to come to an agreement outside of court. They could agree to sell the business and divide the proceeds, agree to continue to operate the business jointly, or one spouse could buy out the other one.