Entrepreneurs pour their time and money into their businesses to get them off the ground. The amount you invest in your company may make it the most valuable asset in your portfolio. That can put your business at risk if you file for divorce.
This is true even if you founded the company before you got married. Companies are treated differently than other assets under Florida law, and they may be found to have both separate and marital interests in the case of a divorce. If you are approaching a divorce, it is essential to understand how your company’s separate property business interest may be valued and how this could affect your settlement.
The Importance of Valuing Separate Property Business Interests
Florida’s equitable distribution laws consider all assets a couple acquires after they have been married to be their joint property. In contrast, assets that each spouse brings into the marriage are considered separate property, which is usually ineligible for division during divorces. Under this rule, many entrepreneurs assume that the company they brought into the marriage will automatically remain their sole property and requires no protection.
That is not the case, however. While the company’s value at the start of the marriage may be considered separate property, any increase may be regarded as joint property. This is especially likely if the business’s profits were used to support the household or if your spouse took part in company operations without a clear employment contract.
This marital interest may be resolved by granting your spouse a portion of ownership in the company equal to their share of its increased value. You may also negotiate with your spouse to give them the equivalent amount in other assets to maintain full ownership of your company. However, to find the exact amount to be divided, you must determine the value of both marital property business interests and separate property business interests in your divorce.
To find the separate and marital interests in a company, you must do two things. First, you need to appraise the company to determine how much it is worth now compared to its value when you married. Next, you must decide how much of that increase is attributable to your spouse’s involvement.
Appraising Businesses in Florida
Valuing a company accurately requires understanding how it functions. There are three ways you may determine the value of your enterprise:
- Income Approach: This approach sets the company’s worth as the value of the present earnings or expected future earnings over a set period. It is the most common solution due to the relative simplicity of finding a firm answer.
- Market Approach: This strategy compares the business to similar recently sold companies. It is less frequently used due to the complexities of comparing companies, finding sale prices, and determining whether the company should be worth more or less than similar organizations.
- Cost Approach: This technique assumes that the value of a business is found in its assets. It determines worth by adding together the value of company property and subtracting any liabilities. It is most frequently used for companies that rely heavily on equipment or merchandise rather than skills and knowledge.
Regardless of your chosen approach, you will use the same method to determine your company’s value for both when you got married and today.
Determining Marital Interest in Separate Businesses
Once you know how much your business’s value increased, you can determine how much should be divided. One possible assumption is that the entire difference between a business’s initial value at the time of marriage and its later value is considered marital interest and should be subject to division.
However, under Florida’s equitable distribution laws, you may be able to argue that the marital interest was less than the entire gain. For example, suppose a significant amount of the business’s increase in value was due to market forces or assets that predated the marriage. In that case, it may be argued that the marital interest is less than the entire gain. The exact amount will depend on the specific circumstances of your business and divorce.
Defending Separate Property Businesses During Divorce
Running your company is a labor of love. You shouldn’t have to worry about losing it during your divorce. At EPGD Business Law, our skilled associates have significant experience in commercial and family law, so they have the knowledge and experience necessary to help you protect your company. Learn more about how we can help you divide a separate property business during divorce by scheduling your consultation today.