Valuation of Closely Held Businesses in Divorce Proceedings

Generally, divorce cases involving thorny property issues can be complicated to resolve. This especially is true when the marital estate includes a closely-held business. A closely-held business usually presents one of two scenarios in the divorce context. The business may be tied to one spouse who is responsible for the business's success. Distribution of the business to one spouse often creates asset allocation and business valuation issues. It presents the problem of valuing the business and structuring the parties' assets and liabilities in order to provide the other spouse with a comparably valued property distribution. If the business depends on the operating spouse's good will and management, which many closely-held businesses do, then the true value can suffer under the emotional stress common in divorce even if the business is distributed to the key-person spouse. A business having one value when operated by the key-person spouse can have a far different value when distributed to the non-operating spouse.

Defenses in Fault-based Divorce: Mental Illness

Divorce statutes in most states consider several defenses in case of fault-based divorce, such as recrimination, condonation, reconciliation, collusion, and connivance. States traditionally have allowed mental illness as a common law affirmative defense in fault-based divorce actions, particularly against charges of adultery, cruelty, and desertion. Under a typical scenario, the defendant was required to plead the defense and prove that mental illness prevented the defendant from recognizing that the offending act was wrong. In states that allow fault-based divorce and that have detailed statutory schemes governing divorce actions, the general movement has been to limit or eliminate common law divorce defenses such as mental illness.

Property Division in Divorce: Equitable Distribution

As the name implies, "equitable distribution" seeks to give the divorce court some discretion to distribute property equitably in divorce. Many common-law states and some community property states use equitable distribution for dividing marital assets and debts between divorcing spouses. Many equitable distribution states also apply the scheme to divisible property, and some so-called "all property" states may apply it to all of the spouses' property.

Spouses as Witnesses in Divorce Proceedings

In general, either spouse can testify in a ''no fault'' divorce proceeding, in a fault-based divorce proceeding, in a property settlement hearing, or in proceedings relating to custody determinations. While such testimony can be highly relevant in a divorce proceeding, there are some rules (including the marital communications and anti-marital facts privileges) that come into play when considering the admissibility of such testimony.

Vacatur of Divorce Judgments

"Vacatur" is an order of a court which sets aside or annuls a proceeding. When a judgment of divorce is vacated, the marital rights and status of the parties are restored, and the parties are placed in the position in which they were before the divorce.


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