The process of ending your marriage in Florida can raise difficult questions when it involves a business. That company can represent years of hard work and your family’s financial future. The good news is that business division does not have to be purely adversarial in a divorce. By taking the right steps and getting an accurate value, you can protect the business and everyone who depends on it.
Marital vs. nonmarital assets
When determining property division, there is a difference between a business that started before the marriage versus one started by the couple while already married. However, that does not always mean courts will exclude the business from division.
If the business grew in value during the marriage, a judge may count that increase as marital property if marital money, shared work or either spouse’s efforts helped it grow. The business itself may remain separate property, but the appreciation can become subject to equitable distribution during divorce proceedings.
Valuing the business
When valuing closely-held companies in a divorce, experts generally look at either fair market value or intrinsic value. Fair market value is the price a willing buyer would likely pay a willing seller in an open market, while intrinsic value may reflect the business’s value to the owner, which can be higher or lower depending on the circumstances. To reach that number, valuation experts usually use one or more of these common methods:
- Asset-based approach
- Market approach
- Income approach
In Florida, there is also an important distinction between personal goodwill and enterprise goodwill. Personal goodwill is the value tied to one person’s reputation, skills or relationships, and is generally not subject to division. Enterprise goodwill is the value that belongs to the business itself, and courts may include that portion in the marital estate.
Strategies to protect the company
There are several practical ways to help safeguard your business in the event of divorce. One option is using buy-sell agreements to limit who can own or vote shares in the company if an owner divorces or wants to transfer their interest. A postnuptial agreement can also provide a written contract to help you and your spouse keep certain business assets separate.
The impact on stakeholders
A divorce can also affect the lenders, investors or other stakeholders of a business. It can create a liquidity problem and pressure the owners to come up with a large cash payment. This can strain the company’s finances and even lead to change of control clauses in loan agreements or other covenants.
Investors may also worry that the business will become less stable during the divorce process. For that reason, couples must put measures in place to protect operational continuity to preserve confidence among stakeholders when resolving their divorce matters.
Preserving the venture you started
Business division during a divorce is a complex process and often requires a multi-disciplinary team. An attorney and a forensic accountant can work together to help ensure your valuation is accurate to better protect your corporate structure.