Divorces can be stressful, emotionally and financially draining, and sometimes even confusing. Some people do not understand how assets are divided in a divorce. Assets are divided through “equitable distribution,” even though sometimes it may not seem equitable. Courts decide whether property is either “marital” or “separate” – marital assets are equitably distributed; separate assets are not. Afterwards, courts value the property by its fair market value (“FMV”) and distribute it amongst the spouses. The FMV of assets should be considered with the appreciation or depreciation during the marriage. Additionally, the value of goodwill is also considered.
Do Business Assets get Divided in a Divorce?
It depends. The FMV of houses, cars, bank accounts, and even personal items such as jewelry is easier to value than the FMV of a person’s business’ interest. For example, what if the business’ interest was acquired prior to the marriage or during the marriage? Sometimes business assets are divided in a divorce, other times they may not be.
Is a Business Marital Property?
The general rule is that if the business interest is acquired during the marriage, with joint funds, then it is considered marital property and will need to be equitably distributed amongst the parties. On the other hand, if the interest in a business occurred prior to the marriage, or acquired with separate funds, then the interests acquired should be considered separate, and thus, not have to be equitably distributed. However, there are exceptions to the general rule. Just because a business interest was acquired prior to the marriage, does not entirely leave the spouse free from equitable distribution. Cases like these are seen when a business’ net worth rises significantly throughout the marriage.
Are Assets in a Business Protected from Divorce?
Not all types of business are the same and some may have different rules. Different types of businesses include corporations (which includes professional associations (“P.A.”)), partnerships (such as general partnerships and limited partnerships), limited liability companies (which includes professional limited liability companies), etc. LLC businesses are run according to an operating agreement. In some cases, the assets in an LLC may be shielded from consideration as personal assets in a divorce proceeding. In Florida, a Florida P.A., may leave a spouse with dividends of the corporation but without any say in matters of the corporation, meaning the spouse may not have a voting power, just power to receive a portion of the dividends. This is determined if the business has goodwill. Goodwill is the practice’s value that exceeds its tangible assets and the tendency of the practice’s clients or patients to return and recommend the practice regardless of the individual practitioner’s reputation.