How does a Divorce impact a Business Owned by the Parties?
Is your business considered marital property? What if part of your business is marital property and part of it is separate property? Will you need to determine the value of your business?
This page will explain several of the commonly asked questions concerning a marital business.
Is my Business Marital Property?
Although it may not be apparent to most, businesses, just like real property or investment accounts, are assets which may be subject to equitable division upon a divorce. Georgia case law makes it quite clear that business, like other forms of property, may be divided upon divorce if deemed marital property, or they may be exempt from equitable division if they are determined to be separate property.
According to Georgia's Supreme Court, not only may a business which was formed during the marriage be
subject to equitable division upon divorce, but a business which was started
before marriage or started using pre-marital resources may also be subject to
equitable division, if the value of the business increased due to the efforts of
both spouses. However, appreciation in value during the marriage, which is
solely a result of market forces, does not cause the asset to become marital property subject to equitable division. In addition, one portion of the business can be determined
to be a spouse's separate property, while another portion of the same business can
be marital property subject to equitable division.
How is a Marital Business Divided?
If the Court determines that any portion of the business is marital property, the business must be valued before it can be divided. Generally, three principal methods of calculation may be applied to determine the business's value in question: the income or capitalized earnings method, the market approach method, and the cost approach method.
The valuation of a business is a complicated legal and financial endeavor. Thus, it is often necessary for both parties to introduce evidence provided by an accountant or business valuator to aid the court in coming to the appropriate conclusion regarding the value of the business.
Once a business is determined to be marital property and it has been assigned a value, there are several methods by which the Court may order the division of a marital business. If the divorcing couple owns several business interests, the Court may order one spouse to retain some interest and the other spouse to keep the remaining interest. Alternatively, a Court may award a marital business to one spouse and order that spouse to "payout" the other spouse for their interest in the business. Should you have any additional questions regarding the division of your business, contact the Atlanta Divorce Team.
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