What Happens to Business Assets in a Divorce?

The prospect of a divorce can be pretty turbulent even in the best of circumstances. When you’re a business owner, though, you may find there are additional concerns. Chief among these is likely to be about what happens to business assets in a divorce.

In short, there’s a chance that your business assets could be shared with your spouse under Florida’s equitable distribution of marital assets legislation. It’s no wonder that this is a worrying prospect for a lot of men going through divorce. After all, you’ve likely dedicated years of your time, energy, and talent to crafting a company that reflects your passions. The last thing you want is for the potential division of your business assets to disrupt your enterprise’s growth. Not to mention it might have a knock-on effect on your employees and other stakeholders in the worst case scenarios.

As with so many issues surrounding divorce, though, knowledge is your friend. By collaborating with an experienced divorce attorney and learning more about the details of what happens to business assets in a divorce, you can more effectively navigate the situation and even safeguard your company. So, let’s dive a little deeper into the topic.

Business Assets and Equitable Distribution

Strictly speaking, the division of assets in Florida divorces follows the principle of equitable distribution. Does this mean everything is cut directly down the middle? Well, not quite. Under this law, the Florida courts seek to divide marital property in a manner that is fair, though not always literally equal between the spouses. One of the most important things to remember is that business assets — whether it's a small side-hustle enterprise or a larger corporate interest — are taken into consideration when equitably dividing the marital estate.

A key consideration when looking at business assets under  equitable distribution legislation is whether they’re classified as marital or non-marital property. In the most simple terms, marital property is any asset that is acquired during the time frame of the marriage. Non-marital property describes any assets that you gained before you got married. This is far more straightforward when it comes to dividing your record collection or perhaps furniture. It’s a little more complex when it comes to classifying relevant business assets.

This is because those assets can appreciate in value over time. While you may have started the business prior to your marriage, any appreciation in value that occurs while you’re married can be subject to equitable distribution. This is particularly apt if it could be reasonably argued that they contributed to the growth of the business in some manner, such as by playing an active role in managing the company.

So, you can already start to see how handling business assets in a divorce can be subject to quite complex elements. In order to ensure a fair outcome, it is essential to collaborate with a Florida divorce attorney with experience representing men and their entrepreneurial interests.

Discovery and Valuation

Before the courts can determine what represents a fair division of business assets in a divorce, they need to have a solid understanding of their value. It’s vital that the calculation of value is accurate. This not only helps to ensure fairness during division, but can also prevent disputes later on regarding misrepresentation that can lead to more legal processes and costs. Your experienced Florida family law attorney can help you navigate this complex issue, but it’s still worth getting an overview of how valuation is likely to proceed.

Valuation of business assets typically begins with the discovery process. In essence, this is about gathering documentation and other relevant evidence about the company’s financial position. In relatively amicable divorce cases, there may be enough trust between the parties that voluntary submission by the primary business owner of all relevant evidence is sufficient and you may even avoid discovery entirely. However, it is often the case that attorneys on either side of the divorce are involved in obtaining this evidence, sharing information, and perhaps arranging for investigations to identify any potential hidden business assets.

In most instances the actual calculation of the value of business assets will be performed by a financial professional, such as a certified public accountant (CPA) or similarly qualified assessor. Your experienced Florida divorce attorney will usually have appropriate contacts in their network, though if there are disputes, your spouse’s attorney may also arrange for an independent assessor.

The valuation itself will usually focus on one of three areas:

• Income: The income approach calculates the business's worth based on its ability to generate future income. This method is often used for businesses with consistent revenue and profitability, as it focuses on projected cash flow and earnings. 
• Asset: The asset approach values the business based on its net assets, which is common for companies with substantial tangible assets, like real estate or equipment.
• Market: The market approach assesses the business’s value by comparing it to similar businesses that have been sold. This method is usually suitable for businesses in well-established industries where comparative data is available. 

Alongside the current value of the business, if the company was started outside of the marriage, the assessors will usually explore the historical value of the company and how it has developed over time. This helps to gain a better understanding of what proportion of the value is likely to be subject to equitable distribution of assets, particularly if there are believed to be spousal contributions that directly affected the success of the business.

The Division Process

One of the elements of handling business assets in a divorce that many entrepreneurs find concerning is how the practical division of assets will take place. After all, giving your spouse a large percentage of the business’ profits or handing over tangible property has the genuine potential to see a company fail. The good news is that there are various ways to approach division of business assets that allow a certain amount of flexibility to avoid a negative impact on the business.

The most common options here are the following.

Buyout

One of the more common options, particularly for those who want to maintain full control of a business, is a buyout. This literally involves purchasing the other spouse’s share of the business. Buyout is usually a practical option if your former spouse is more interested in gaining money than having a stake in the company. The purchasing spouse can either use personal funds or secure a loan to buy out the other’s interest. In some instances, assigning a proportion of other marital assets in place of those related to the business is also a solid form of buyout.

Co-ownership

Another option is co-ownership, where both spouses maintain an interest in the business after the divorce. This approach really only works if there is a significant amount of trust between the two parties. After all, the relationship has to be amicable enough that both can continue working together in a professional manner. In some cases, spouses agree to divide specific management responsibilities, profits, or decision-making powers to ensure the business operates smoothly.

If neither of these approaches to division are practical, it may be the case that the court orders the business to be sold and the profits divided. This may not always be in the best interests of either party, though, as a business sold in haste may not see a return of the full potential value. 

The court also has leeway to consider it most fair to divide the business assets in one spouse’s favor. This may be the case when the company is very closely tied to said spouse’s specific skills or their individual reputation. In those instances the court may feel it makes more sense to  allow one spouse to retain ownership while compensating the other with different marital assets, even if the non-owner spouse is determined to maintain some control of the company..

In the end, arranging the practical division of business assets is a negotiation. It’s in your best interests to collaborate with a Florida divorce attorney that has significant experience in navigating the process. This is about finding someone that pragmatically but aggressively represents you not just as a partner in your relationship but as an entrepreneur that has dedicated your time and energy to the success of your business.

Protecting Your Business

As with so much in life, proactive preparation is the most effective way to protect your business assets from a divorce division. Long before marital difficulties become a problem or even before you get married, there are some legal processes you can use to strategically safeguard the company and your interests in it.

Among the most common strategies is to use a prenuptial or postnuptial agreement. These are legally enforceable contracts that outline how business assets will be handled in the event of a divorce. This may strictly state that a company started prior to the marriage remains sole property of the owner spouse. Alternatively, it may detail a mutually-agreed division percentage and process, regardless of any change in value. It’s important to involve attorneys for each party here to ensure the agreements are devised within the strict requirements under Florida law and notarized properly.

Call The Family Law Attorneys Men Trust (813) 336-5547

In Law We Trust Divorce and Family Lawyers is a premier firm of divorce lawyers representing men in family law proceedings. We have years of experience representing men who are navigating equitable distribution of assets, including handling business assets. Our team’s experience and skills help to guide our clients through the hurdles of the Florida family law courts. Call us today and get the proper representation men need and deserve.