It is possible to lose one’s business in a divorce, yes. But let’s break it down because just like any other domestic relations issue, getting to the final result is not so simple. To begin, businesses, like real property or investment accounts, are assets that can be subject to an equitable division during a Georgia divorce proceeding.
In a previous article, we explored equitable division in Georgia. Here, the judge is allowed the discretion to distribute property and debts between parties in a manner that seems just and fair. Marital property includes assets acquired during the marriage, enhancement in value and appreciation of non-marital assets, interspousal gifts during the marriage, real and personal property held as tenant by the entireties, and certain retirement benefits. Thus, a business may qualify as a marital asset.
The Georgia Supreme Court even stated, “[c]ertainly, a closely-held corporation may be a marital asset subject to equitable division in a divorce. And, even a business which was started as the result of separate pre-marital funds may be subject to equitable division if there is an appreciation in the value of the business during the years of the marriage due to the spouses’ individual or joint efforts.”
Therefore, if a business was formed during the marriage it may be subject to an equitable division upon divorce. But, even if a business was created before the marriage and solely with one partner’s funds, it can still be considered a marital asset. The main factor to look at is the increase in value of the business. If there was an increase of value during the marriage and if so, if that increase may have been the result of spousal effort, either separately or in conjunction with the other spouse.
Once it has been determined that the business is considered marital property, the business must then be valued in order to determine its division. There are three methods that can be taken to determine the value of the business. These include the income or capitalized earnings method, the market approach method, and the cost approach method. As you can understand, this is a very complicated legal and financial process. Thus, it is wise to have evidence produced by an accountant or business valuator, which will be classified as expert testimony to the court. This can assist the court in reaching the appropriate conclusion regarding the value of the business.
Finally, there are several methods through which the court may order the division of a marital business in an equitable manner. For instance, the court may order that the parties both retain a certain interest in the business. Conversely, a court may decide that it is best for one party to hold complete ownership and order that spouse to pay the other spouse for this or her interest in the business.
If you are contemplating a divorce and have your business, or your spouse does, please contact the attorneys at Vayman & Teitelbaum. Our skilled attorneys can help you navigate through this complex process with ease.