Nebraska Divorce for Business Owners

Owning a business adds significant complexity to an already challenging divorce process. If you're a business owner in Nebraska facing the end of your marriage, you're probably worried about what will happen to the company you've worked so hard to build. Will you lose control? Will it be sold? Can you keep running it?

The good news is that courts rarely force successful businesses to shut down or award ownership to a spouse who never worked in the company. Instead, several options exist to protect both your business interests and ensure a fair outcome for your divorce.

How Nebraska Classifies Business Property

The first critical question in any divorce involving a business is whether the company counts as marital property. This determination affects everything that follows in your divorce case.

If you started the business during your marriage, courts typically consider it a marital asset subject to division. Both spouses have a potential claim to its value, even if only one person actively ran the company. The reasoning is that marriage involves partnership, and the non-owner spouse may have contributed in other ways that allowed the business to succeed.

Businesses started before marriage get more complicated treatment. The value your company had on your wedding day remains your separate property. However, any increase in value during the marriage may be considered marital property subject to division.

For example, if your business was worth $500,000 when you got married and it's worth $1 million at divorce, that $500,000 increase could be split between you and your spouse. The original $500,000 stays with you as separate property.

Several factors can blur these lines. Did you use marital funds to grow the business? Did your spouse contribute by handling business tasks, giving up their own career, or taking care of the home so you could focus on work? These contributions can strengthen your spouse's claim to a share of the business value.

Equitable Distribution

Nebraska courts don't automatically split everything 50/50. Instead, they aim for fair distribution based on your specific circumstances. This principle of equitable distribution gives judges flexibility to consider what's truly fair for both people.

When dividing marital assets, courts look at several factors. The length of your marriage matters significantly. A business built over 20 years of marriage will be treated differently from one started just before separation.

Each spouse's contributions to the marriage count, including both financial contributions and non-financial ones like raising children or supporting the other's career. The court also considers each person's financial situation and earning capacity.

If you're the business owner with strong income potential and your spouse sacrificed their career for the family, the division of assets might favor your spouse to balance things out. Your behavior during the marriage can even play a role if one spouse wasted marital assets or engaged in financial misconduct.

The goal is to ensure both people can move forward with financial stability. This doesn't mean equal splits, but it does mean fair outcomes based on the unique circumstances of your marriage and business.

Getting an Accurate Business Valuation

Before your business can be divided, someone needs to determine what it's actually worth. Business valuation is one of the most critical steps in the divorce process for business owners.

An inaccurate valuation can cost you thousands or even millions of dollars. Professional appraisers or forensic accountants typically handle business valuations. These experts use established methods to arrive at a fair market value for your company.

Hiring an independent professional helps ensure the valuation will hold up in court and provides credibility to the process. Three main approaches exist for valuing businesses.

Asset-Based Approach

This method calculates your business's net asset value by adding up all assets and subtracting liabilities. It works well for companies with significant physical assets like equipment, inventory, or real estate.

However, it doesn't account for future earning potential or intangible value like customer relationships and brand reputation. This approach often produces lower valuations for service-based businesses.

Income-Based Approach

This approach focuses on your company's ability to generate income. The valuator examines past earnings and projects future profitability to determine value.

This method works best for established businesses with consistent income streams and reliable financial records. It captures the true earning power of your company.

Market Approach

This method compares your business to similar companies that recently sold. The valuator looks at sale prices of comparable businesses in your industry and geographic area.

This approach requires sufficient market data to make accurate comparisons. It works best in industries where business sales happen regularly.

The valuation method used can significantly impact the final number. Business owners and their attorneys should understand these differences and advocate for the most appropriate method for their specific situation.

Special Valuation Considerations

Business valuation involves more than just picking a method and running numbers. Several unique factors can affect your company's value in a divorce case.

Goodwill represents the intangible value of your business beyond physical assets. Nebraska courts distinguish between enterprise goodwill and personal goodwill.

Enterprise goodwill is the value attached to the business itself, including things like customer lists, reputation, and location. This type of goodwill is considered a marital asset that can be divided.

Personal goodwill is different. Its value is tied specifically to you as an individual, based on your personal reputation, skills, and relationships. For example, if clients come to your business specifically because of your expertise, that's personal goodwill.

Nebraska courts typically don't consider personal goodwill as a divisible marital asset because it can't be transferred to someone else. This distinction can significantly reduce the value subject to division in your divorce case.

Income determination presents another challenge. Business owners sometimes have flexibility in how they report income, which can affect both business valuation and support calculations.

Courts will examine tax returns, financial statements, and business records to determine your true income. They look for signs of income manipulation, personal expenses run through the business, or other financial practices that might hide the real earning picture.

Discounts can reduce the final valuation amount. A lack of control discount applies when the owner doesn't have complete control over business decisions, such as when there are other partners or shareholders.

A lack of marketability discount reflects the difficulty of selling ownership interest quickly. These discounts can substantially lower the value assigned to your business interest, which benefits the spouse keeping the business.

Options for Dividing Business Assets

Once your business has been valued, you face the question of how to actually divide it. Nebraska law provides several options, and the right choice depends on your specific circumstances.

Buyout Method

The buyout is the most common solution for a business division in a divorce. One spouse buys out the other's interest in the company, allowing the buying spouse to keep full ownership and control.

The spouse who doesn't keep the business receives compensation equal to their share of the company's value. You don't necessarily need cash on hand to complete a buyout.

Many business owners structure buyout agreements using other marital assets as offsets. For example, your spouse might keep the family home and retirement accounts while you keep the business.

Another option involves structured payments over time, where you pay your spouse their share gradually from business profits. These payment plans need proper documentation and often include security provisions to protect the receiving spouse.

Co-Ownership Arrangement

Some divorcing couples choose to continue co-owning and operating the business together. This arrangement can work if both spouses remain on good terms and maintain a productive working relationship.

It allows the business to continue without disruption and both parties to benefit from its future success. However, co-ownership comes with significant risks.

Most divorcing couples struggle to maintain the cooperation and communication needed for a successful business partnership. If the business relationship deteriorates, it can create ongoing conflict and potential legal disputes.

Financial disagreements about profits, reinvestment, and business direction often arise when former spouses try to work together. Courts generally don't favor this option unless both parties genuinely want it and demonstrate they can work together professionally.

Selling the Business

Sometimes the best option is selling the business and dividing the proceeds. This solution works when neither spouse wants to continue operating the company, they can't agree on fair value, or a buyout isn't financially feasible.

Selling presents its own challenges. Finding buyers for small or specialized businesses can take considerable time. Both spouses typically need to agree on listing prices, sale terms, and timing.

Market conditions might not be favorable, potentially forcing you to sell at a lower price than the business is truly worth. If the business provides your primary income, selling it means finding new employment or starting fresh.

Despite these challenges, selling can provide a clean break and ensure both spouses receive their fair share in cash rather than through complicated offset arrangements.

Asset Offset Strategy

The offset method involves one spouse keeping the business while the other receives other marital assets of equivalent value. This approach lets you retain your company without making cash payments or structured payment arrangements.

For this strategy to work, your marital estate needs sufficient other assets to balance against the business value. Common offset assets include real estate, investment accounts, retirement funds, or other valuable property.

The key is ensuring the total value received by each spouse is fair and equitable. This method works particularly well when you have diverse marital assets and want to avoid ongoing financial connections with your ex-spouse.

Protecting Business Interests During Divorce

Smart business owners take steps to protect their companies both before and during divorce proceedings. While some protective measures work best when implemented before marriage, others can help even after divorce papers are filed.

Proactive Protection Strategies

Planning ahead provides the strongest protection for your business. Consider these strategies:

• Create a prenuptial agreement that specifies your business remains separate property or limits your spouse's claim to business appreciation
• Establish shareholder or partnership agreements that restrict transfer of ownership interests to ex-spouses or establish buyout procedures
• Set up a trust to hold business assets, which can under certain conditions protect them from being considered marital property
• Maintain separate business and personal accounts to clearly establish what's business property versus marital property
• Pay yourself a reasonable salary rather than mixing business and personal spending throughout the company

During Divorce Protection Steps

Even after filing for divorce, you can take steps to protect your interests:

• Gather complete financial documentation including tax returns, financial statements, bank records, and valuation reports
• Hire an experienced divorce attorney who understands both family law and business law
• Engage a professional business valuator early to establish accurate value and identify issues
• Avoid major business decisions without court approval or agreement from your spouse
• Keep business operations stable to maintain value and demonstrate your capability as owner

Maintaining clear separation between personal and business finances helps establish what's truly business property versus marital property. Use separate bank accounts for business and personal expenses.

Keep detailed, accurate financial records for the business. These practices help during divorce by clearly showing business assets and income.

Poor record keeping can lead to unfavorable assumptions about business value or income. Avoid commingling assets by not depositing marital money into the business or using business funds for personal expenses.

Working With Professional Advisors

Divorce involving a business requires expertise beyond standard family law knowledge. Assembling the right team of professionals protects your interests and helps achieve the best possible outcome.

Your Legal Team

Your divorce attorney should have specific experience with business division in Nebraska divorces. Look for a family law attorney who understands business valuation, complex asset division, and tax implications of different settlement structures.

Some cases benefit from having both a divorce attorney and a business attorney working together. The business attorney can advise on corporate issues, protection of proprietary information, and business continuity.

An experienced attorney helps you understand your options, negotiate effectively, and protect your interests throughout the divorce process. They can also coordinate with other professionals on your team.

Financial Professionals

A forensic accountant or business valuator provides a critical assessment of your company's worth. These professionals have specialized training in valuation methods and can provide expert testimony if your case goes to trial.

They can also identify hidden income, trace commingled funds, and analyze complex financial structures. Their independent assessment carries weight in settlement negotiations and court proceedings.

A tax professional should review any proposed settlement to identify tax consequences. Different asset division methods have different tax implications. Understanding these consequences helps you make informed decisions and avoid unexpected tax bills.

Impact on Employees and Operations

Your divorce shouldn't derail your business operations. Develop a communication plan for addressing employee concerns without oversharing personal details.

Maintain normal business operations as much as possible. Employees need stability and reassurance that the business will continue. Major operational decisions should wait until the divorce is resolved unless absolutely necessary.

Consider having key employees sign confidentiality agreements to protect sensitive business information that might be disclosed during the divorce process. Your business attorney can help draft appropriate protections.

Tax Implications of Business Division

The way you divide business assets in your divorce can create significant tax consequences. Understanding these implications helps you negotiate a settlement that makes financial sense.

Transferring business ownership between spouses as part of a divorce decree is generally tax-free under federal law. However, the receiving spouse takes on the tax basis of the original owner, which affects future tax liability if they later sell.

Structured buyout payments may be treated differently than lump sum transfers. Payments characterized as property division are generally not taxable to the recipient or deductible by the payer. Payments characterized as alimony have different tax treatment.

If you sell the business as part of the divorce, capital gains taxes will apply to any appreciation in value. These taxes can significantly reduce the net proceeds available for the division.

Retirement account offsets also have tax implications. Trading pre-tax retirement funds for after-tax business value isn't an equal exchange. Work with a tax professional to calculate the true after-tax value of different assets.

Moving Forward as a Business Owner

Going through a divorce as a business owner is undeniably stressful. Your company represents years of hard work, and protecting it while ensuring a fair settlement requires careful planning and expert guidance.

The key is starting early with the right professionals. An experienced divorce attorney who understands business valuation and the division of business assets can make an enormous difference in your outcome.

Don't try to hide income or manipulate business value. Courts have seen these tactics before, and they backfire. Transparency and good-faith negotiation typically produce better results than aggressive tactics.

Consider what matters most to you. Is keeping full ownership of the business your top priority? Are you willing to give up other assets to achieve that goal? Understanding your priorities helps guide settlement negotiations.

Remember that most business owners successfully navigate divorce without losing their companies. With proper planning, accurate valuation, and experienced legal assistance, you can protect your business interests while moving forward with your life.

The divorce process involving a business in Nebraska is complex, but it's manageable with the right approach. Focus on achieving a fair settlement that allows both you and your spouse to move forward financially stable, while preserving the business you've built.