Divorces can be complicated and contentious affairs. Emotional turmoil combines with legal obligations to create an extremely stressful environment. Nowhere is this felt more than when it comes to dividing property. Singular assets like cars and bank accounts are bad enough, but then can come the much less divisible assets such as a family business. Who gets to retain control of the company? How is the company divided? And how is the business valued? All of these questions and more will be the subject of this article.
Marital vs Separate Property
Generally, divorcing spouses are only required to divide their marital assets. Separate property is usually not divided up in Ohio unless there are special circumstances under a distributive award. This means that with only a few exceptions, most debts and assets acquired during the marriage are considered marital property. Real estate, personal property, bank accounts, stocks, and even retirement plans are considered shared items. Even contracts you may have entered into prior to the marriage, like a mortgage, may be regarded as marital property if your spouse helped with payments. Exceptions are made for gifts or inheritance acquired during the marriage but intended only for one party.
In Ohio, equitable distribution is the principle in divorce law used to separate marital assets between the two spouses. While the court usually divides marital property equally, the court can, in fact, divide property in any manner it considers “equitable.”
Is A Business A Marital Asset?
Before you start considering your property division, it is important to determine if your business will be categorized as a marital asset and therefore, subject to equitable distribution. As we saw above, anything acquired during the marriage will be considered marital property. So if you founded your business while married, it would be viewed as a marital asset. Sometimes, even if you established the business before your nuptials, it can still qualify as shared property. For instance, if you start a business, get married two years later, and work together on scaling the business, all of the increase in value may be marital property. Commingling of assets is a natural part of marriage, and unless you can prove your spouse contributed nothing to the business, chances are good it will be divided between the two of you in one of three ways.
How To Find The Value Of The Business
Businesses are not as easy to value as a house or a car. An expert, such as a certified business appraiser, will be necessary to establish the value. What makes things more complicated is there can be several ways to value a business. One expert might compare your company to similar businesses that have sold in the same year and estimate a value based on that. Another may look at your profits and losses and evaluate your worth based solely on those. Spouses who own a business 50/50 may submit slightly different assessments of its value to the court.
Three Ways To Divide It
What you wish to happen to the business will decide how you want to divide it. For instance, if one spouse desires to keep sole ownership of the company, they may have to give up another marital asset of equal value or pay one-half of the value to the other spouse.
There are two other options for dividing the business, besides one spouse buying out the other. The first and most obvious is that the pair simply sell the business and split the profits. The sale profits will be considered marital property and therefore, part of the equitable distribution. In this way, the company is divided fairly, just like all the other assets.
The final method is that the spouses continue to co-own the business. They will have to remain on relatively good terms with each other, and strict rules will have to be made about each person’s share and responsibility in the company. Unfortunately, cooperation is not the most common attitude during a divorce. So this option is rarely used.
If you have more questions about your upcoming divorce and how your business will be affected, call Garretson & Holcomb, LLC at (513) 863-6600.