November 01, 2013 /24-7PressRelease/
-- Issues concerning the distribution of a business entity in Florida divorce proceedings
A marriage is a lot like a business partnership; each relationship involves both personal and financial aspects. And, just as a business partners sometimes go their separate ways, spouses may decide that divorce
has become necessary.
Of course, sometimes spouses are also business partners, or one of the spouses is a business owner. Even if one spouse is not involved in a business operated by the other, that business is likely considered marital property under Florida law, particularly if the business was opened or acquired during the marriage. When a divorce involves the distribution of a business entity, there are sometimes many challenges which must be overcome in order for the parties to reach an equitable conclusion.
Accurate business valuation is critical if one spouse plans a buyout
Under Florida law, marital property is divided equitably upon divorce. This means property will be divided fairly based on all relevant factors; it starts with a 50-50 presumption, but does not necessarily mean a 50-50 split, depending on various nuances.
What is marital property? Generally, anything the spouses acquired during the marriage, both individually and as a couple, is marital property. Separate property not subject to division includes things a spouse acquired before the marriage and never commingles, or things acquired during the marriage as a gift (excluding gifts from the other spouse) or from an inheritance.
It is important to note that separate property acquired before the marriage that increases in value during the marriage because of the work of either spouse or the contribution of marital funds becomes a type of hybrid property. While the original value of a business owned prior to the marriage remains separate property, any increase in the value of the business is marital property subject to division in the divorce proceeding.
When a married couple runs a small business together, with each spouse actively involved, there are several options after a divorce.
Some former spouses find that they are able to continue their business relationship unchanged even after the marriage has ended. It may also be possible to split the operations or structure duties so as to not have much direct interaction with each other. Alternately, one spouse may stay on as a "silent partner," retaining an ownership interest without participating in operations. It is critical in this regard for the former spouses to ensure they have written business and partnership agreements in place if they decide to continue joint business ownership.
The business may be sold, and the proceeds divided according to the terms of the divorce settlement agreement or court order. Or, a business valuation may be conducted, with one spouse then buying the other out of his/her ownership interest.
Business valuation is also particularly important when one spouse was actively involved in the operation of the business while the other was not; for example, when one spouse ran a professional practice like a law office or medical practice and the other was a stay-at-home parent. In these situations, a buyout is more likely to be the most attractive solution.
Business valuation is complicated, and there are several ways to value a business. One method is an earning value approach. Most commonly, when using this approach, a Capitalizing Past Earning valuation is utilized. Records of past earnings for the business are normalized to account for unusual expenses or revenue, and then the normalized earnings are multiplied by a capitalization factor (the rate of return a reasonable investor would expect, combined with a measure of expected risk of the investment).
Other common business valuation methods include asset-based approaches, which at the core involve subtracting the liabilities of the business from the value of its assets, and market value approaches, which set the value of a business by making comparisons with similar businesses that have been sold recently. These valuations will require the services of a CPA or other professional or expert qualified to perform business valuations. Frequently, parties will not agree on the method to be utilized in valuing the business entity, or the value itself, and so it is common in more contentious divorces for each spouse to retain his/her own expert, although, upon agreement of the parties, a neutral expert may perform the valuation.
Any divorce involving a business is a complex divorce
. If your marriage is ending and you or your spouse has a business, for the best results, get in touch with a Florida Board Certified family law attorney experienced in complex divorce issues.
Article provided by Lewert Law Offices, P.A.
Visit us at www.lewertlaw.com