Going through a divorce can become more difficult when a family business is involved. How can an income-generating marital entity be divided accurately during an often emotional legal process?
Understanding the common hurdles in business asset division
The unique nature of business assets can create friction points that could complicate the equitable distribution process. In Florida, marital property is divided fairly but not necessarily equally. The following are some common challenges in dividing business assets:
- Valuation discrepancies: The greatest hurdle is determining the fair market value of the business. A forensic accountant can use different methods, such as the income or asset approach, to determine valuations.
- Hidden or undervalued income: A business-owning spouse may deliberately understate revenue or overstate expenses to create a false picture of lower income.
- Active vs. passive appreciation: If a business predates the marriage, only the increase in its value due to marital effort or funds (active appreciation) is divisible. Proving that growth was active and not merely passive market growth can be challenging.
- Goodwill classification: Florida law distinguishes between enterprise goodwill (divisible and tied to the business entity) and personal goodwill (nondivisible and tied to the owner’s reputation). Separating these values can be subjective and contentious.
- Liquidity and payment: A spouse awarded a share of a business often needs cash, but the business may not have it. This can lead the court to create a payment structure, usually through a buyout or a long-term promissory note, which can tie the parties together financially for years.
These challenges demonstrate why business division is rarely simple or fast. The court must protect the integrity of the business asset while ensuring both spouses receive a fair portion of the marital estate.
Pursuing a fair financial outcome
Knowing the difference between what a business is worth and how that value must undergo division can be critical during a divorce involving business assets. With legal counsel, divorcing spouses may better protect their rights, interests and future as they pursue a fair financial outcome.