Debbie, a homemaker from Tucson, Arizona, was seeking a divorce from her husband of 22 years. During Debbie’s marriage, her husband served as the family’s sole breadwinner. As a result, their divorce spelled the loss of future income for Debbie and her family. She needed appropriate spousal maintenance and child support for her minor children.
Debbie’s soon-to-be ex-husband owned a business, which was a marital asset since he started the business during the marriage and Arizona is a community property state. Debbie, however, did not work in the business and had no interest in co-owning it with her soon-to-be ex-husband.
In these types of scenarios, the Court typically awards the business to the spouse who is operating it but grants other marital assets to the other spouse to equalize the value to the parties. By losing the business, though, Debbie would also miss out on the future income it produces.
Debbie needed appropriate spousal maintenance and child support for her minor children. Most importantly, Debbie needed to understand the full value of her husband’s business, negotiate for a buy-out of that business, and obtain sufficient income to support her lifestyle.
Debbie faced three specific challenges:
- Determining the value of her husband’s business
- Negotiating a way for him to buy her out of the business
- Obtaining sufficient spousal maintenance and child support
It’s no easy matter to determine a business’ value. A variety of factors go into creating a business valuation, including total liabilities, total assets, historical earnings, projected earnings, and profitability. As such, a business valuation expert is commonly engaged to calculate the value.
There are a number of methods a business valuation expert might select—asset valuation, cash value analysis, revenue multiplier, or earnings multiplier are just a few. Each of these approaches employs a different equation to measure the business’ value. However, certain methods are typical for certain types of businesses.
In our case, Debbie and her future ex-husband jointly agreed on a reputable firm to conduct the independent business valuation.
Once a fair value was calculated, Debbie would need a plan to receive her half of the business’ value through a combination of other marital assets and a series of cash payments. Debbie approached Bridge Divorce Strategies for help.
Our objective in this case was threefold:
- Review the business valuation and offer an opinion
- Determine potential settlement options that would equalize the assets between the parties
- Present a strong case for the needed spousal maintenance and child support
We reviewed the independent business valuation and found it lacking. The outside expert had valued Debbie’s husband’s business. We found a discrepancy in the valuation due to missing information about husband’s deferred compensation, which was never provided to the valuation expert. This resulted in a significant increase in the value of the business. As a result, Debbie’s share of the value also increased.
We came up with a settlement option to equalize Debbie for the business. Debbie would receive a share of the other marital assets over 50% plus a series of quarterly payments with interest until the amount required to equalize their settlements was paid.
Consequently, Debbie’s former husband was sending her regular payments instead of writing her a check for a lump sum. We calculated an appropriate interest rate for these business buy-out payments. Debbie’s attorney negotiated that rate as part of the divorce settlement.
We successfully increased the amount and duration of Debbie’s spousal support and child support. By reviewing the couple’s previous lifestyle, we were able to substantiate a reasonable need for spousal maintenance that was significantly higher than was being offered and for a longer duration as well.
Debbie was a homemaker. She had been out of the workforce for 22 years, serving her family at home and leaving her husband free to earn the family’s support. Debbie historically depended entirely on income from a business from which she would no longer benefit. Consequently, Debbie needed a higher level of spousal maintenance than her husband was offering. And she needed it for a longer period of time.
Debbie also had children. Her ability to support those children again depended entirely on the family business in which she was no longer vested. To alleviate Debbie’s financial concerns, we partnered with her to build a case for receiving more child support than the state’s guidelines called for.
We lobbied for and received an agreement from husband for him to carry term life insurance in an amount sufficient to cover all of his financial obligations to Debbie until they are fulfilled with her as the irrevocable beneficiary of the policy.
As a result of working with Bridge Divorce Strategies, Debbie’s spousal maintenance increased in both amount and longevity from the original offer to one that valued her 22 years of behind-the-scenes support. Her child support also increased as a result of our case.
Because we looked carefully at Debbie’s finances, we were able to help her claim head of household status when filing her taxes, saving Debbie money each year. We also successfully argued for a higher business valuation, which increased her payout, and for regular interest added to the business buy-out payments.
As a result of her experience with Bridge Divorce Strategies, Debbie is now one of our wealth management clients. Even after her divorce, we are still helping Debbie manage her investments, minimize her tax burden, and handle her financial planning. Our goal is to position Debbie to be financially secure for the rest of her life.