We are often asked “Is my business at risk during a Louisville divorce?” What does a business owner need to know if they are considering or at the outset of a divorce?
The first question regarding the business or professional practice in a divorce is whether it will be characterized as your separate asset, marital property or even some blend of the two. If you owned your company prior to the date of your marriage and have not used any marital funds to support your company it may very likely be protected as “separate” property and not subject to marital property division during the divorce.
The main issue that puts a business at risk during a Louisville divorce is the amount of your spouse’s marital interest in the asset itself. Any asset (or debt) acquired by either or both of the spouses from the date of your marriage until the date of separation is with few exceptions characterized as marital property. Marital property is to be divided equitably between the parties during a divorce. What does that mean for your business?
If the company is considered to be a marital asset the valuation of the business must be established. Valuation is a complex legal and financial process as there are multiple accepted methods for determining the valuation of a company. It is usually in the best interests of a business owner in a divorce for the valuation to be as low as possible. The lower the valuation (and resulting equity) the less of a challenge it will be to offset your spouse’s marital interest in your business if you intend to keep it.
The reality in these cases is it is int the interests of the spouse of the business owner for the valuation to be as high as possible as this leads to a much higher value of their portion of the marital property.
Once the characterization of the business asset is completed and the valuation of the marital interest in the company is established there are basically three options:
- Sell the company and divide any resulting / remaining marital property interest from the sale
- The owner of the company must offset the spouse’s marital interest in the company with other assets from their own portion of the marital property. If there is not enough other marital property such as equity in the family home or retirement accounts to offset the business interest, the owner may take a business loan to retire the spouse’s marital interest.
- Negotiate a secured interest for the former spouse to be retired over a period of time with through regular payments or other agreed upon solution.
The issues that can put your business at risk during a Louisville divorce require experienced and skilled legal advice and counsel. The proven divorce and family law attorneys at Dodd & Dodd have decades of experience in divorce cases involving a business or professional practice. If you wish to protect your company it is important to carefully pre-plan your divorce in order to protect your own interests as well as the company you’ve worked so hard to build.
We invite you to review the strong recommendations of our former clients and contact us or call 502-584-1108 to schedule an appointment with one of our experienced divorce and family law attorneys.
