How are Business Assets Divided in a Divorce?

By February 12, 2020Uncategorized

Many people have some general idea that marital property gets divided during an Ohio divorce. But we have had more than one business owner be shocked to find out that his or her business—the fruit of years of hard labor—can also qualify as marital property, subject to division.

Whether you run a sole proprietorship or have a controlling stake in a partnership, corporation or LLC, you should understand how your business assets will be divided. Contact an Ohio divorce lawyer for more information.

Identify if the Business is a Marital Asset

Generally, a couple only divides their marital assets, not their separate property. So the first step is identifying if the business is really marital property and, if so, how much of it is marital.

In Ohio, marital property is generally anything acquired during marriage. If you started your business after getting married—or if you bought a stake in a company after marriage—it is typically marital.

Even if you started a business before marriage, some increase in the value could be marital. For example, you might have started a small manufacturing company in 2000, before getting married in 2002. After almost 20 years of marriage, your business is worth much more today than when you began. This increase in value can also be marital.

There are some exceptions. If you inherited the business, then some or all could be your separate property, even if you inherited it after getting married. The same is true if business assets were given as a gift.

Value the Business

Once you determine what percentage of the business is marital—100%, 75%, etc.—you need to value it. Business valuation is extremely complicated and not as easy as valuing other assets, like a car or even real estate.

Typically, a business valuator is needed to properly identify the correct value. However, there are different ways to value a business which can yield different numbers. For example, an evaluator might find comparable businesses that have recently been sold and estimate the value of your business based on that. Another technique is to look at your profit and loss statements, as well as other business records, to see how much the business makes in a year.

Put the Business in the Marital Pot

If some portion of the business value is marital, it gets put in a pot with other marital assets, such as a retirement account started after getting married or the home you bought with your spouse. You need to identify the value of all assets in the pot. For example, your business might be worth $200,000 and all other assets are worth $400,000. This means the pot is worth $600,000.

Divide the Assets in the Marital Pot

Some people wrongly assume that spouses divide all marital assets 50/50. A judge has discretion to divide them unequally, though “equitably,” based on the circumstances.

Let’s assume that the judge divides marital property 50/50. The couple needs to decide which assets they get from the marital pot. If there is $600,000 worth of assets in the pot, then each spouse gets $300,000.

Try to Preserve the Business in One Piece

In the above example, each spouse gets $300,000. The business is worth $200,000. This means the spouse who has started and run the business could request getting the entire business as part of the divorce settlement.

Unfortunately, in many divorces, business assets cannot be divided that neatly. Say the marital pot holds $600,000 but the business makes up $500,000 of the value. If each spouse gets $300,000, then the business must be divided somehow.

In some cases, only one spouse has worked in and contributed to the business. Logic would dictate this person should continue to run the business so that it continues to be a successful going concern. However, the other spouse might have a right to a share of ownership.

If this situation arises, we encourage you to meet with an attorney. A lawyer can come up with strategies to try and keep the business in one piece. This might require taking out a loan and buying out your ex’s share of the business. In other situations, you might be better off selling the business entirely and dividing the revenue.

Speak to an Ohio Divorce Lawyer Today

Dividing business assets is one of the most complicated parts of a divorce. Business owners should meet with an attorney with ample experience dealing with valuation and other issues. Please contact Lawrence Law Office today.

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