What Happens To The Business In Divorce?
Determining The Balance Of Ownership In Divorce
When a business ownership interest is at stake in a divorce, the law can be complex and negotiations fierce. The Gentry Law Firm LLC has skillfully helped numerous clients regarding business ownership and divorce, both for the spouses who have created businesses and those who have enabled their spouses to build businesses. Our firm can help you value the business and negotiate aggressively to reach a fair division.
The Challenges Of The Closely Held Business
Closely held businesses, including partnerships, limited liability corporations, professional practices and other entities can be difficult to divide in a divorce. However, such closely held businesses can be marital property and subject to equitable division.
The business may have provisions in the articles of incorporation or bylaws regarding ownership transfers that can impact your divorce. In many cases, ownership interests in closely held businesses are nontransferable. In addition, ownership interests can be hard to value.
There are three general methods for obtaining a value for a closely held business in a high-asset divorce. They are:
- Capitalized earnings method
- Market approach method
- Cost approach method
The court has discretion regarding which method to use that will obtain the closest true value of the business interests. Which one is best for you will depend on your individual circumstances.
Gentry Law Firm LLC can walk you through your ownership interests and how best to obtain an accurate value. Overvaluing or undervaluing the business interests can have a significant impact on your finances, including alimony amounts and in the division of assets.
Discovering Hidden Assets
When one party to the divorce owns a business, the other party may be unaware of some of the business’s finances. In such a situation, the party without all of the financial information can be left with less of a share of the marital property than is equitable.
Gentry Law Firm LLC, pursues all avenues to discover hidden assets. After 30 years of practicing divorce law in Cobb County and surrounding areas, Gentry Law Firm LLC has developed a network of expert and reliable professionals who can help you get the information you need. We can hire forensic accountants, business valuation experts and others who can take a thorough accounting of the business’s finances.
Is an LLC protected in a divorce?
In Georgia, businesses are treated like any other asset in a divorce. If you and your spouse can’t agree on how to address it in a settlement agreement, the Court will make that decision for you. This applies to LLCs as well as other business formations.
If you started the LLC while married, the law generally treats it as marital property (and it is therefore subject to division) unless:
- You received it as an inheritance, gift from a third party, or court-ordered award OR
- There is a buy-sell agreement in place that allows other members of the LLC to buy the share of a divorcing party.
Your Marietta divorce attorney will go over the circumstances of the business’s formation to determine whether any of these safeguards apply.
What are the options for the business?
Once a business subject to equitable distribution has been valued, you generally have three options for addressing it in your divorce:
- Buying out your spouse: This is the most common option, especially for professional practices where co-ownership by an unlicensed spouse is not allowed.
- Selling the business: If a buyout is not viable or the spouse who owns the business is ready to move on, another option is to sell it and divide the proceeds. If the owner doesn’t want to sell, however, the other spouse may have to obtain a court order.
- Co-ownership: In some cases, spouses may agree to run the business as co-owners after divorce. This option works best if your separation is amicable and you’re willing to work together for the good of the company.
Each option has its advantages, disadvantages, and potentially complicating factors like co-owners, business debt, and third-party agreements, so speak to your divorce lawyer before making a decision.
Can a prenuptial agreement protect a business during a divorce?
A fair prenuptial agreement entered into by two willing spouses can protect your business should you get divorced. The key word here is ‘fair’: if the goal of the agreement is to put a financially weaker spouse at a disadvantage, the courts may not uphold it.
Your prenuptial agreement could address business ownership interests in divorce by:
- Specifying that you will receive full ownership of the business while your spouse receives marital property of equal value.
- Indicating the value of the company at the time you marry. This value may be protected as separate property (although any appreciation after the marriage may be subject to division).
If you signed a prenuptial agreement that mentions the future of the business, provide a copy to your Georgia divorce lawyer so they can advocate for the outcome you want.
Protect Your Stake In The Business: Schedule An Initial Consultation
For an initial consultation with a noted high-asset divorce lawyer, reach us at 770-425-5573 or through this online form. Located in Marietta, Georgia, we represent clients throughout Cobb County and surrounding areas.