Your business can be an essential part of who you are. Chances are good that you have worked hard and sacrificed much to see your company grow. Your business might even be the largest investment in your overall asset picture.
So if you’re headed for divorce, you may rightfully worry about the future of your business and how it will be affected by your new situation. In Ohio, your business has the potential to be divided or sold for profits, which are then divided. Let’s look at the differences and give you some idea about what to expect during an Ohio divorce.
As you may know, marital property in Ohio is split using equitable distribution which, in most cases, means equal division. What is considered marital property is really where all the work is done in asset division. Ohio considers this a guiding principle because the courts assume each spouse contributed equally to the marriage. Even if one spouse was the “breadwinner” and the other was the “homemaker,” the courts consider both parties equal.
As a general rule of thumb, an asset is considered marital property if it was acquired during the marriage. So if your business was established after your nuptials, it is highly likely it will be considered a marital asset. Therefore, it will be divided in some way, just like the bank accounts and retirement funds. Under Ohio property division laws, the business will be divided 50/50 unless it cannot easily do so. In which case, it may be sold, and the profits will be divided.
Even businesses that were founded prior to your walk down the aisle can be considered marital property. As the business grows and its value increases, the increase in value obtained during the marriage may be considered marital property. Just as a bank account opened before the marriage is fair game because it was contributed to while you were married. In this case, it is possible only part of the business’s value will be considered marital property and, therefore, divided. A good divorce attorney is paramount in situations like these so you can retain the assets that matter the most.
Dividing the Value
Perhaps the easiest way to divide your business is by selling it and dividing the profits with your spouse. However, this may not be the route you wish to take. Alternatively, you could pay your spouse for one-half of the marital property associated with the business. In other words, you could “buy them out” of their “share” of the business. You could also offset your spouse’s percentage of the company by allocating other assets to them that you would otherwise have a claim to. Negotiating assets in this way is called a distributive award, and it can often be beneficial to both parties. For instance, you could keep your business intact but give up equally valued items such as other investment properties or a disproportionate share of your retirement plans. A qualified attorney can help you with the specifics of your property and what exactly can be used for bargaining.
Determining the Value
Before the value of the business can be divided, it must first be determined. This can be a complicated step that usually requires the advice of financial professionals. One way is to determine the value of the business if it were to be sold today and then divide that value according to the marital interest in the company. As we said above, if the business was established during your marriage, this is likely a 50/50 split. If it was established before your wedding, the spouse might only be entitled to a percentage of the growth that took place during the marriage.
Another method involves finding the annual gross receipts and multiplying that number by an earnings multiplier. This method is more complex but finds the value of the business more accurately. Again, your experienced divorce attorney should have no issue providing you with an independent valuation expert to review your particular situation.
Seek Professional Help
Regardless of how you assess the value of your business and how you choose to divide it, you can benefit greatly by employing experienced counsel. At Garretson & Holcomb, we provide years of experience for those dividing complex business estates due to divorce. Call today at (513) 863-6600.