How to Divide a Business in a Divorce

A business person signing a document

What Happens to My Professional Practice During My Divorce?

If you and your spouse have owned or operated a business together or individually throughout your marriage, then distributing this business asset can become one of the most complicated portions of your divorce proceedings.

When a business is involved in a divorce, there are certain steps that must be taken in order to properly divide this large asset including:

  1. Classifying the business / practice as a marital asset
  2. Identifying the business structure
  3. Valuing the business
  4. Negotiating the division of the business

To properly handle such a complex issue such as a business asset in a divorce, contact and employ an experienced Orlando divorce attorney.

1. Classifying the Business as Marital Property

The first step in any equitable distribution assessment is the determination of the property as marital or separate.

Separate property generally is any items acquired by a spouse individually prior to entering into the marriage or property that was bequeathed to them during the marriage. In contrast, marital property is any property acquired during the course of the marriage, or the appreciation in value of property acquired prior to the marriage. (F.S. 61.075)

Therefore, if a business was built or bought prior to the marriage, then it may have been non-marital, separate property; however, if you received income and the business increased in value during the course of the marriage, then it may turn into marital property. As a result, a business that was operating during the time of the marriage is considered to be marital property in many cases.

2. Identifying the Structure of the Business

After determining the business as marital property, it will be necessary to determine the structure of the business.

If the business is a sole proprietorship, the business and the individual are not distinct, while if a business is a limited liability partnership or corporation, it has its own separate identity with separate rights. Therefore, with a separate identity, the court will have no power over such a business unless named as a party to the action.

If your business is a separate entity, then properly add the business as a party to ensure the court has proper jurisdiction to order such divisions of this business. Further, it will be important to note the structure of involvement of each spouse.

If a single spouse was running the business and making the major contributions and decisions, then the court will take this into account during distribution. Additionally, if a spouse was drawing an additional income from the business, this may affect a possible alimony or child support award and the value of the business all together.

This process is simplified if the structure of the business is within the hands of third parties and the spouses have simply invested and have a hands-off approach.

3. Valuing the Business

Proper evaluation of the business, is argued to be the most important factor of a business distribution in a divorce.

In order to assess the value of a business, an expert is generally employed, such as a Forensic CPA or Business Valuation Specialist. These experts will generally look into a number of different factors to determine a value and they have different methods; however, the most common are liquidation value and the market-based approach.

Liquidation value accounts for all the assets of the business, such as property, equipment, materials, inventory, bank accounts, and accounts receivable, and subtracts any outstanding debts. The market-based approach compares similar business based on services provided, bulk of product or sales, notoriety, and other relevant factors to other businesses in the area that are for sale or recently sold in order to determine a value for the business.

4. Negotiating the Division of the Business

After finding an appropriate value, the couple will then negotiate a division of the business. Such division can come in many different forms.

If a single spouse wishes to retain the business solely, then they may negotiate buying out the second spouse of their interest in the business. If a spouse cannot afford to buy out the second spouse, then the court may choose to award other assets to the spouse to account for their interest in the business that they are losing. Finally, the couple may choose to sell the business and divide the proceeds of the sale, retaining no interests to the business at all.

Consult an Attorney That Can Protect Your Business Practice in a Divorce!

A family business can be your sole income and highly valuable to your family. Therefore, it should be treated with a great deal of caution when attempting to value and divide such property. It is important to have the experience and knowledge of an attorney on your side to ensure your rights are protected regarding such a valuable asset.

Speaking to an attorney at our Orlando office is free of charge, and we accept calls 24 hours a day, 7 days a week. Contact us at 407-512-0887 or complete an online contact form to get in touch with a member of our team today.

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