Sarasota Business Valuation Divorce Attorneys
In a Florida divorce, one of the most prominent concerns during the divorce process is determining the division and allocation of a family business. Typically, any business that was established during the marriage is marital in nature and is subject to the legal parameters of the equitable distribution of marital assets, debts, and property as ordered by Florida courts. The Sarasota divorce attorneys with Tobaygo law have the experience required to defend the commercial ownership rights of clients. Contact our family law firm today to schedule a free initial case evaluation and to obtain comprehensive counsel regarding a wide range of family law matters and divorce issues in Florida.
How Are Businesses Divided In A Divorce?
A substantial portion of businesses is owned by a spouse as well as one or more additional investors or stakeholders who have no relation to the marriage. Additionally, businesses may be owned by one party prior to the marriage but may have grown or expanded during the course of the marriage. To divide a business, the courts consider a number of factors, such as the business’ classification and the value of the business.
Classifying A Family Business
In order to effectively determine ownership of business during a divorce, the court must determine the classification of the business as either a marital asset or non-marital asset with consideration to a number of factors. The courts may consider the date in which the business was established; the source of financial contributions to the business’ creation; the financial and time-related investments made by each spouse to the business; the experience and skill required to successfully maintain the business; and the difference in the initial value of the business from the current value.
In the case that business was acquired prior to the marriage and both spouses contribute marital funds into the business — or if the non-owning party left his or her job for the benefit of the business — the classification of the business may be transmuted from personal separate property to marital property. Additionally, a business acquired during the course of the marriage may not be classified as marital property if the business was inherited or was received as a gift from individuals who are not associated with the marriage. Businesses may also receive divided classifications.
Certain portions of the business may be considered marital in nature, while other portions are classified as non-marital in nature. During the classification process, the courts typically take into consideration the division of shares in the business as well as the ownership interests of other types of business partners not affiliated with the marriage.
Valuing The Business
Florida courts oftentimes determine the value of the business either through the testimony of the divorcing parties or preferably through the testimony of one or more business valuation experts. Once that value is determined, and assuming there are no grounds for unequal distribution of the business, the court will order a distribution schedule where the one spouse will be required to make lump sum payment(s) to the other spouse which is equal to half of the value of the business. In the case that the business was acquired prior to the marriage, the business may be considered either completely or partially non-marital.
This means that the opposing spouse may only be eligible to receive a portion of the value of the business or none at all. This theory is also applied in cases in which one spouse co-owns a business with other non-related parties, as the court can only distribute the portion of the business that is owned by the spouse(s). The most important aspect of this process is to ensure a favorable business valuation based upon each party’s situation. There are three technical standards utilized in the valuation of a martial business during divorce — asset-approach valuation, market-approach valuation, and income-approach valuation.
The asset approach calculated the value to the business through the formula: value equals assets subtracted from liabilities. Marital business assets include both tangible assets — inventory, infrastructure, and any other physical property — and intangible assets — which include intellectual property and accounts receivable. While this valuation process may seem simple on paper, attributing value to business assets can be arbitrary in nature and pose difficulty in determining the overall valuation of the business. What’s more, asset-approach valuation doesn’t take into account undocumented assets and debts which may create additional complications with the overall valuation of the business. As such, valuation with an asset approach is best suited for small-size and independently owned businesses.
The income approach is calculated based on historical information and particular formulas to determine the net income of the business as well as the expected income in the near future. In addition, the formulas used with the income approach consider a number of potential benefits and rate of risk or return. While this is the most commonly used approach in determining the value of a marital business, this option can present a significant number of inaccuracies for owner-operated companies. Essentially, the total is comprised of subtracting the owning spouse from the equation, adding the cost of an employee-replacement to the owner and determining the net income projected for the next five years, and subtracting potential risks values.
The market approach calculated the business value by comparing the business in question with other businesses with similar characteristics that have been sold. This approach is similar to the process of valuing residential homes based on other sold properties in the same neighborhood. A number of valuation experts adjust their calculations based upon results of the asset approach and income approach. However, the use of the market approach for marital business valuation is dependent upon the availability of other similar businesses that are either currently for sale or have recently been sold, or “comps.”
How To Protect A Business During Divorce
In a number of divorce cases, one spouse is more active in running the business than the other spouse and forcing the spouses to participate in equal co-ownership of the business may not be beneficial to the wellbeing of both parties. What’s more, the division of a marital business may eliminate either one or both party’s primary source of income. Generally, a divorce attorney can convince the court to preserve the integrity of the business under one spouse — usually the spouse with majority time and efforts invested within the business.
The skilled attorneys with our law firm can assist you throughout each step of the divorce process, including advising you of the likely outcome of marital business division if your spouse makes a claim against the family business in your divorce. Alternatively, if your spouse has a business that has increased in value during the marriage, or was founded during the marriage, you may be able to make a significant claim. If you find your business threatened by pending litigation, schedule a consultation with our Sarasota family lawyers today.