In any marriage breakup, custody determinations and the division of marital assets are usually two of the most contentious issues. For the Florida business owner, there is an extra layer of complexity in how a divorce affects business when it comes to the financial implications of property division, especially if there are claims on the business or its related assets.
As a business is often the most valuable asset in a household, whether one spouse is the owner, partner or majority shareholder, dividing it up in a divorce proceeding can have serious consequences.
Equitable division of property
As Florida is an equitable division state, the court decides what is an equitable, but not necessarily equal, division of marital property. Several factors that go into the court’s decision include the present and future economic circumstances of each spouse, financial and non-monetary contributions to the marriage, relative wealth of each as well as the custodial needs of each spouse.
Complications can come up for the business if the owner is a significant shareholder and the ex-spouse receives a large portion of their stock in the divorce. This will make the ex a shareholder or partner. If the ex-spouse had a position in the business and remains with the company, things can grow very uncomfortable at work. And if the ex then decides to leave unexpectedly and sells their stock, this can destabilize the business.
Limited options for protecting the business
When the business is on the chopping block, selling it is the most drastic option, but one that will allow the owner to walk away from an impossible situation. Another avenue is to sell their stock to other partners with a buy-back option in order to save the business from future dissolution.
Another possibility is to offer up an asset of equal value, such as the family home, in exchange for their shares in the business. If this trade-off is not quite satisfactory, the business owner can offer to make payments over time to save the business interest.
Proactive planning
Although hindsight is 20/20, it is possible to head off future conflict at the beginning of or even during the marriage with a pre- or postnuptial agreement. This legal document can spell out the relationship of the business to the marriage, who owns it, what its agreed-upon value is and what, if any, appreciation will be passed on in a divorce.
Other proactive measures include putting the business into a trust, having an insurance policy on the business or separating finances so that not collateral from the home is used as investment in the business. These and other tips can save the business even if the marriage goes sour.
