How is the marital interest in a business divided during a Louisville divorce? What are the options available to the owner of the business and/or their spouse?
The first step is to establish if the business interest is, in whole or in part, a “marital” asset subject to property division. Generally speaking, any business interest acquired before the date of the marriage and kept completely separate from marital labor and assets will usually be considered to be the “separate” property of the business owner. Likewise, any business interest acquired after the date of marriage is likely to be considered “marital” property, subject to equitable division during a Louisville divorce. It is not unusual for separate property to be “commingled” in some manner with marital funds or labor. In these cases, the Court must determine which portion of the business interest is the separate property of its owner, and what percentage of the business or amount of money has been commingled.
The next step in the process to divide the marital interest in a business during a Louisville divorce is to establish the actual value of the marital interest in the business before the Court. The process, known as “valuation,” usually involves certified appraisal expertise and can be ordered by either or both parties (jointly or severally) or the Judge. In some cases, the parties collaborate to select an independent expert to determine the valuation. If the Court orders valuation, the Judge can assign the cost to either or both parties. In other situations, each party hires its own appraiser. In these cases, the appraisals are usually quite different based on the interests of the party who hired the appraiser. The Court must ultimately decide how the valuation of the marital interest in a business will be established before marital property division.
Once the valuation has been established, the marital property interest in the business must be addressed. There are multiple options regarding a business asset that is, in whole or in part, marital property. These options include, but are not limited to:
Close or Sell the Business – It may be time to close the company and sell off all remaining assets, retiring associated debts. Another common strategy is to sell the business.
In some cases, especially when both parties are involved in the business, the best strategy is to keep the business running and operate it together. This usually requires parties who are at least neutral toward one another, if not amicable. A contract establishing the interests of each separate party in the future, including the percentage of interest, voting rights, and division of revenues, should be negotiated and submitted to the Court for review and approval. In rare instances, the former spouses may choose to continue business operations but hire a new management team to remove themselves from daily operations.
Another common strategy to manage the marital interest in a business during a Louisville divorce is for the owner of the business to offset the marital interest of the other party with other marital assets, such as equity in the family home, retirement or pension assets, other sources of cash or equivalent value, a new business loan or a secured interest in the business. In effect, the business owner buys out their former spouse’s marital interest in the business.
What is the best strategy for dividing the marital interest in a business? Should you consider a postnuptial agreement to stipulate the outcome before beginning the divorce itself? These are legally and financially complex questions that will require the experienced, proven, and sound counsel of the divorce and family law attorneys at Dodd & Dodd.
We invite you to review the strong recommendations of our former clients and the legal industry and contact Dodd & Dodd or call 502-584-1108 to schedule an appointment with one of our attorneys.
