The impact of divorce on business ownership

Asset division is an important part of divorce. Almost every asset is subject to division: bank accounts, investments, real estate, valuable pieces of artwork, and, for those who own a business, the interest in the business.

How does asset division work during divorce?

The process generally involves three steps: identify, value and divide.

In the first, identification, the couple determines which assets are marital assets subject to division during the divorce, a process guided by state law. Georgia state law generally distinguishes between marital and separate property. Marital includes assets acquired during the marriage. Some property is exempt, such as those inherited or acquired prior to the marriage as well as any specifically labeled as separate in premarital agreement.

The valuation portion can be difficult and may require the use of experts. This depends on what types of assets are present. Those with multiple pieces of real estate and business interests, for example, will likely need financial experts to help determine the worth of the assets.

When it comes to the final step, division of property, Georgia state law uses the legal theory of equitable distribution. This essentially means that a court will distribute the assets in a matter it deems fair. It is important to note that fair does not always translate to an equal distribution of assets. The court will take various factors into consideration when making its determination, including the financial status of each party, the health of each individual, future needs and evidence of misconduct. In Georgia, the courts can take fault into consideration. Thus, if one spouse wrongs another it can impact the division of assets.

How does this process work when business interests are involved?

Those who own a business will first need to determine if the business interests are considered a marital asset. If the business was started during the marriage or experienced growth during the marriage, the court will likely consider it a marital asset. There are some exceptions. A premarital agreement, for example, that specifically removes the business from consideration as a marital asset could qualify.

Next, the business will need to go through a valuation process. In some cases, it is wise to get more than one professional estimate. After both parties agree to a proposed business value, the negotiations over division can begin. In most cases, the spouse who wishes to retain full ownership interest in the business will give up another asset of similar value in exchange for the interest rights. It is also wise to get a release of claims from the spouse who is backing away from the business. As an extra safeguard for the business, it can be helpful to get an indemnity provision that removes the business from any future claims made by creditors of the spouse who is stepping away from the business.

This is just one example of how the division of assets when the assets include business interests may unfold. The process will vary, depending on the details of the divorce. As a result, it is wise for those who are in this situation to seek legal counsel to tailor the process to their needs.