DISCLAIMER: This is meant to be general information and advice regarding businesses and divorces. Kendrick Law Practice is ONLY authorized to practice law in Georgia and no other state or territory. Nothing in this blog post should be construed as legal advice and is for information purposes only.
What Happens to Your Business if You Get Divorced?
Everyone enters the marriage with the hope and even expectation that it will last forever. Unfortunately, the reality in today’s society is that about 50% of marriages will end in divorce. A divorce is unpleasant and messy for anyone, but it can be especially so for a business owner. In divorce cases where the parties own a business that is subject to division things can get complicated in a hurry.
Use of a Premarital Agreement to Protect the Business
Depending on your jurisdiction it may be possible for you to obtain a premarital agreement that would exclude a business that you own pre-marriage from consideration in any later divorce and property division. For those business owners who are considering marriage this would definitely be a worthwhile topic to discuss with a competent family law attorney in your jurisdiction. If the law in your state permits this it is an extremely effective way to avoid future disputes concerning your business.
How Will the Value of the Business Be Determined?
In most cases, one party will be awarded the business and the other party will be bought out. In these scenarios often the biggest issue in the case is what the value of the business is. Unlike real estate, retirement accounts or vehicles, valuation of a business is a relatively inexact science. The nature of most small businesses makes them often difficult to sell and there is no ready-made database of “comparables” to look at as there are with residential homes.
Consequently, in cases where the business is of substantial potential value one or both of the parties may hire a business valuation expert to prepare an appraisal and report for use in the litigation. Potentially this expert may also appear in the case and testify at trial about their opinion as to the business value.
While business valuation experts have certain criteria that they use in reviewing a business and calculating its value (primarily based on review of historical financial data), all business valuations are by their very nature speculative. The only true way to find out the worth of a business is to actively market it and determine what a willing buyer would actually pay. Since this is usually not practical (unless the parties are actually trying to liquidate the business), a valuation expert is the next best thing.
Can the Parties Divorce and Still Be Co-Owners?
Occasionally a couple run a business together and, while they are good business partners, they are not good marriage partners. In those circumstances where both parties are integral to the success of the business they may both want to continue running the business together, even after they are divorced. I have seen this happen in my own cases and with the right personalities it can work. But for going down this path both parties need to give serious consideration as to whether this is a practical solution. An example where it would not work well would be where one spouse doesn’t really want the divorce and sees co-ownership as a way to stay connected to the other spouse and even potentially reconcile at some point in the future. In all likelihood this situation would worsen if and when the other spouse decided to move on with their life and perhaps began a new relationship. In a situation like this it is far better to simply determine a value for the business and work out a buyout arrangement.
Divorcing as a business owner is certainly more complicated than the typical divorce and a situation where you definitely want to obtain an experienced, competent local family law attorney to advise you on your options.
About the Author
Scott Morgan is a Texas family law attorney. He has practiced family law since 1994 and is Board Certified in family law by the Texas Board of Legal Specialization. He is the founder of the Morgan Law Firm which has offices throughout Texas including its new Sugar Land office.
**The “Legal Life Lessons” Series was started by Attorney Kendrick in 2012 as a way to showcase real life legal situations that either she has experienced or those within her networks have experienced. The goal is to move away from boring, white paper style discussions about the law and focus on creating comfortable conversations about real experiences in the life of Georgia business owners.**
DISCLAIMER: Kendrick Law Practice and its attorneys are ONLY authorized to practice law in Georgia and NO OTHER territory, state or country and therefore any and all legal advice is only applicable for businesses and individuals that reside and/or located in the State of Georgia. Additionally, please be advised that this communication does not create an attorney-client relationship unless there is a signed or electronically filed retainer agreement on file with the Firm.
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