Imagine the scenario: You and your spouse decide to open a business together. You become successful and make a significant amount of income from the business. Suddenly, you and your significant other are no longer able to get along, you file a divorce based on irreconcilable differences, and you have to figure out the valuation of your business for property division.
Unfortunately, this is reality for many spouses. Owning a business makes an already difficult situation even more challenging to overcome without contention. After all, both parties may want to stake claim to the business, the ideas and trademarks, and of course, the income that comes with it.
In a divorce involving a business, it's essential to recognize how the court determines division, what factors play a role involving income, and what happens when the two parties cannot come to an agreement.
Businesses in Property Division
Like other property and assets in a divorce, businesses are to be divided between the spouses based on their valuation and whether they're marital or separate property. Businesses that are separate property can have some aspects that make the income earned marital property. It's important to have a lawyer help you understand what to do next.
Typically, businesses that the two spouses start together after they wed are considered marital property. The courts will treat them as such. All past and future income earned from the business are split between the two parties per the court order.
In some situations, one spouse may own the business before he or she even met his or her significant other. Through the course of the marriage, the spouse with the business may decide not to put the other spouse's name on the business, thus making it separate property.
However, you should know that the income made by the business during the course of the marriage can be considered marital property. So, even though one spouse actually owns the business, the income or assets from the income made during the marriage can be split during property division. This means any homes or cars bought during the marriage, even if it was from money made by the business, are marital property.
What Happens When the Parties Cannot Come to an Agreement?
In many divorces involving businesses, the spouses must work out an agreement with what to do with the business and how to divide it. Unfortunately, this isn't always the easiest process and the spouses may not be able to work together on the outcome.
Some situations allow for an amicable resolution, meaning the two parties can work together to continue to run the business and split the profits in a fair manner. However, if the two parties are unable to work together, it's highly doubtful that one spouse is willing to give up the value the business brings to their life to the soon-to-be ex-spouse.
In situations where parties cannot come to an agreement, the court may ask the parties to sell the business and split the profits that they bring in. This is similar to other property that the couple may own together. The business is sold at a specific price, and the courts use those funds to continue with property division manners.
What to Watch Out For
In a divorce, it's typically one party who initiates the process. In the case of business owners, this may mean that the one who files for divorce has time to plan what they're doing and try to hide assets that come in from the business. For instance, the filing spouse may set up a separate, hidden bank account to take a portion of the profits to try and avoid property division.
It's important to recognize the potential of hidden assets in a divorce involving a business and how it may affect your resolution. Working with a legal professional can give you access to resources—such as forensic experts—who can track down any hidden assets and work to ensure they are part of the property division process.
Our Atlanta divorce attorneys at Atlanta Family Law Group LLC have significant experience helping individuals divorce, even when businesses and high net worth is involved. We work hard to protect our clients' rights and best interests throughout the process and prevent spouses from taking advantage of one another.
Let our compassionate and dedicated team be your guides from start to finish. Contact our firm today to discuss your divorce and learn how we can protect you and your family.