6 Essential Things to Know If You’re a Business Owner Getting Divorced

As a business owner, divorce can be a daunting prospect. A divorce can impact your rights and interests in the business you worked so hard to create. Today, the lawyers of Church Church Hittle and Antrim will discuss how divorce in Indiana could impact your business and what you can do to protect your business interests.

Equitable Distribution

Divorcing business owners may wonder: is my husband or my wife entitled to half my business if we divorce? Under Indiana law, all property owned by the spouses or a business owned by one person, whether acquired before or during the marriage, may be part of the marital estate. Businesses typically become marital assets subject to a property division in a divorce. Without a solid, enforceable prenuptial agreement that protects your business, it is likely to be subject to division in divorce. It does not matter if the business is in one or both spouse’s names.

Indiana presumes that all marital assets, including businesses, are subject to equitable distribution. The presumption is that an equal division of the marital estate, including businesses, is reasonable and just. However, you can provide evidence to rebut this presumption and show that an equal distribution would not be just or reasonable.

Business Valuation Methods

Business valuation determines a company’s economic value. In divorce, the court uses the valuation to understand what the asset is worth so it can be fairly distributed to the spouses.

There are several business valuation methods, such as:

• Market—the assessment bases the value of the business on an analysis of what comparable businesses have recently sold for, as well as market conditions and industry trends;

• Asset—the calculation subtracts liabilities from assets, which include the value of tangible assets, like equipment, inventory, goodwill, and intellectual property; and

• Income—the assessment analyzes the past, current, and projected revenue of the business to determine its value.

Interestingly, each method can yield different results. You may need an outside professional to get an accurate assessment of your company’s value. Speak with a CCHA Indiana divorce lawyer to understand whether you need a third-party business appraiser and the best valuation method.

Goodwill for Business Valuation

Goodwill is an intangible variable that can contribute to a business’s overall worth. In Indiana, enterprise goodwill and personal goodwill can increase your company’s value.

Enterprise goodwill is a result of the business’s characteristics and intangible assets like the company name, location, website, trademarks, patents, suppliers, customer base, and future growth.

Personal goodwill is the intangible value associated with an individual’s skills, relationships, and reputation. It is tied closely to specific individuals within the company and is not easily transferred to a new business owner. Indiana law excludes personal goodwill from the value of a business in a divorce setting.

Still, goodwill can increase a company’s value over that which can be calculated using only tangible assets like equipment or other property. It can be tricky to calculate goodwill, so using a professional is a good way to know exactly what your company is worth.

Partnership and Operating Agreements Can Protect Your Business Interests

Partnership and operating agreements can help protect your business during a divorce. An operating agreement sets out the rights and responsibilities of each member of the company, as well as specifying how to resolve disputes and dissolve the business when the time comes. Such agreements can include a divorce clause. You can use such a clause to set out how to protect or divide the owners’ interests and how to value a business in the event of a divorce.

A partnership agreement can include provisions to protect the interests of other owners if one owner experiences a divorce.

Factors Considered When Dividing a Business

Some additional factors a court can consider when determining how to divide a business in divorce include:

• Whether the business existed prior to the marriage,

• The percentage of the company owned by each spouse,

• How involved each spouse was in running the business,

• The value each spouse personally brings to the business,

• Whether one partner can buy out the other, and

• The ability of each spouse to earn a similar wage outside the business.

CCHA Law Can Help You Understand the Impact of Divorce on Your Business

Running a business is stressful on its own. If you are a business owner, divorce can add to an already challenging situation. CCHA Law can help you understand the impact of divorce on your business. Our firm has been helping clients navigate divorce and business ownership complications since 1880. We have helped thousands of clients protect their business interests while undergoing divorce. Our experienced attorneys understand the fragile nature of any divorce and take the time to listen closely to your concerns and issues. Contact us today to learn how we can help you navigate the potential impact of divorce on your business.