How Businesses Are Treated in Divorce Actions

• August 8, 2024
• CLLB Law
• Divorce

Discover What Happens to Your Business During a Divorce

A divorce doesn’t center on kids and property only. It also focuses on something close to the hearts of many small-business owners: their businesses. Building a successful business takes a ton of effort, dedication, and patience, so when a divorce comes into the picture, it’s normal to worry about what happens to it.

How will you share the property? Will your ex-partner get half of your company? The answer, just like many legal questions, isn’t always straightforward.

In this article, we’ll explore the factors influencing the division of business assets and shed light on what you can expect as a business owner when navigating a divorce. 

What Factors Determine What Happens to A Business during Divorce?

Know What Influences the Court’s Decision during Divorce Actions

Addressing ownership of a business in the course of a divorce proceeding isn’t as simple as splitting household items. Several considerations come into play, the most prominent ones being the following:

When The Business Started

It matters precisely when the business began. If it started before the marriage, its status at the time of marriage is a separate property belonging to the entrepreneurial spouse.

However, any increase in the business’s value between the marriage and the date of separation is marital property, so it must be included as part of the assets for division. Note that this also applies to any business the couple started after the marriage.

Where You Live

Your location influences business division during a divorce. For example, nine states follow community property rules, dictating that assets acquired during the marriage are split equally in a divorce.

Indiana and Kentucky side with most states that follow equitable distribution rules, directing that assets obtained during the marriage should be divided fairly.

The Business’s Value

Evaluating the business’s value involves considering the following:

• Tangible assets — These include bank accounts, inventory, machinery, and buildings.
• Liabilities — Rent on building or equipment lease, credit lines, and ongoing payments for services are types of liabilities considered.
• Intangible assets — Although intangible assets are more difficult to value, they are crucial to a business’s success.

Note: Enterprise goodwill and personal goodwill are types of intangible assets that are often considered in a divorce. While enterprise goodwill includes the business’s relationship with employees, customers, and suppliers, personal goodwill is the continued existence of a person associated with the company.

Ensuring a fair division requires establishing an accurate value for the business.  It is important to hire a knowledgeable appraiser for an unbiased and accurate assessment.

How Does the Court Determine the Division of Properties in A Divorce?

The Top Factors Contributing to Asset Division in Divorce Cases

The court may consider these factors when determining how marital property is divided during divorce:

• The financial condition and earning power of each spouse
• The value of each spouse’s separate property
• The degree to which each spouse contributed to acquiring marital property
• The degree to which each spouse contributed to the education and earning power of the other spouse
• Future financial needs of each spouse
• Financial liabilities of each spouse
• The age and overall health of each spouse.

These factors can help the court determine how the properties will be distributed fairly between spouses based on their unique situation. For more clarity on what may influence asset division in your case, contact an experienced divorce lawyer.

What Do Courts Consider When Dividing a Business?

Know What Determines Business Division in Divorce Cases

The court may consider these factors when dividing a business during divorce:

• How involved each spouse was in the business operation
• Whether the business existed before marriage and the percentage each partner owned
• The value each partner brings to the business, including expertise, professional qualification, etc.
• Whether one partner can buy out the other
• Each partner’s ability to earn a similar income outside the business
• How the spouses will divide the remaining assets and liabilities.

Every divorce case is unique, and these considerations differ from state to state. A competent property division lawyer will review your case’s peculiarities and inform you of what to expect during divorce proceedings.

What Happens If Your Business Partner Goes Through a Divorce?

Know Your Business’s Fate When a Partner Goes Through Divorce

Many issues can arise if your business partner goes through a divorce, especially if you don’t have the proper paperwork in place.

The court may consider the business a marital property without an operating agreement. So, while no insurance protects the business, you can add some protection with an operating agreement. It must include a provision allowing the company to buy back an owner’s interest due to a divorce or other series of events.

Some of the provisions to make in an operating agreement include:

• Limiting the number of people who can own the company to a specific group
• Converting an owner’s interest into a non-voting interest by default
• Restricting the transfer of ownership to third parties without the written consent of the other owners
• Prohibiting an ex-spouse from receiving any interest in the business.

Preparing for contingencies like divorce is crucial to creating provisions that protect your business.  If you don’t have a well-thought-out strategic plan, contact our business and succession planning lawyers ASAP.

We will safeguard your business by proactively planning the events following your or your business partner’s divorce.

Partner with Knowledgeable Indiana Divorce Lawyers for Your Case

We Offer Effective Legal Representation for Your Business’s Protection

It can be very challenging to grapple with questions of controlling interests, marketability, double-dipping, and more during divorce. Since it is a highly fact-dependent legal action, you should speak with an Indiana divorce and or business lawyer. They’ll represent your interests and make the process go as smoothly as possible.

If you have any questions about how businesses are treated in divorce actions, talk to our attorneys at Church Langdon Lopp Banet Law firm. We have years of experience helping people with divorce cases, and we can help you.

Based in New Albany, Indiana, we proudly serve communities throughout Kentuckiana. This includes, but is not limited to, Jefferson County, KY; Floyd County, IN; Clark County, IN; and Harrison County, Indiana.

Contact us now at (812) 725-8226 or use our online form.