Help! Will My Ex Get Part of My Business in Our Divorce?

Help! Will My Ex Get Part of My Business in Our Divorce?

In April 2011, the Supreme Judicial Court of Massachusetts issued its Adams v. Adams decision, which provides additional guidance in the arena of business valuation in divorce. Can a partnership interest be included in the divisible marital estate? Which methodology should be used to value a partnership interest?


When a couple divorces, they will normally need to address issues such as child custody, child support, alimony, and property division. With regard to property division, the first step is to identify the assets that are included in the "marital estate." In Massachusetts, the divisible marital estate includes without limitation all vested and non-vested benefits accrued by both parties during the marriage, such as retirement funds, pensions, profit-sharing plans, and annuities. The Court does not necessarily consider "traditional concepts of title or property" when determining which assets belong in the marital estate. For instance, if one spouse has an interest in a business it can also be included as part of the divisible marital estate.

The second step in property division is to value the assets in the marital estate. Where a spouse's business interests are concerned, experts are often needed to determine the value. The standard for valuation of business interests has been a hot topic in Massachusetts in recent years. The typical approach used by valuation experts is known as the "income approach."  "[T]he basic concept of the income approach is to project the future economic income associated with the investment and to discount this projected income stream to a present value at a discount rate appropriate for the expected risk of the prospective income stream."

In 2007, the Supreme Judicial Court (SJC) established a new procedure to value a spouse's business interests incident to divorce. In Bernier v. Bernier, experts for both spouses used the direct capitalization methodology of the income approach to determine a value for the business interests at issue. The SJC held that "where one of the parties will maintain, and the other be entirely divested of, ownership of a marital asset after divorce, the judge must take particular care to treat the parties not as arm's-length hypothetical buyers and sellers in a theoretical open market, but as fiduciaries entitled to equitable distribution of their marital assets." Thus, Bernier established what is known as "fair value between fiduciaries" as the new valuation methodology to be utilized when valuing business interests in a divorce.

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