how a business is handled in a florida divorce

How Does a Business Handled in a Florida Divorce www.beinerlaw.com 1

HOW A BUSINESS IS HANDLED IN A

FLORIDA DIVORCE “Part of the divorce process involves dividing the marital

assets and debts the couple have accrued during the marriage. People typically think of issues relating

to custody and/or support as the catalysts for animosity during a divorce; however, thedivision

of assets can be equally contentious.”

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When a marriage ends there

are really two separate endings

– the emotional end of the

relationship and the legal

cessation to the union, which is

accomplished through the

divorce process. Part of the

divorce involves dividingthe

marital assets and debts that a

couple has accrued during the

marriage. People typically

think of issues relating to

custody and/or support as the

catalysts for animosity during a

divorce; however, the division

of assets can be equally

contentious. This is particularly

true when complicated assets

are involved, such as a closely

held business. Unlike most other marital assets, a business may continue to be

income producing and therefore may have an ongoing value in the future. Just as no

two divorces are alike, no two businesses are exactly the same. Therefore, only an

experienced Florida family law attorney can offer you individualized advice and

guidance if you are contemplating divorce in which a closely held business will be

involved. An overview of how the law treats a business asset in a divorce, may be

helpful to you.


What Is a Closely Held Business?

People often hold stock in a publicly traded business, making them a shareholder.

Technically, as a shareholder, you are an owner of the business; however, unless you

are a majority shareholder

who materially participates

in the operation of the

business, your interest in

the business can be treated

in much the same way as

any other marital asset. If,

however, you and/or your

spouse own a closely held

business, the “division” of

the business in a divorce is

much more complicated. A closely held business is a private company with few

(usually less than five) shareholders, such as a:

Professional practice (law, medicine, accounting)

Family farm or ranch

Boutiques

Internet based business

Service based small business

Small specialty retail store(s)

Neighborhood restaurant(s)


How Are Marital Debts and Assets Divided in Florida?

In the State of Florida, marital debts and assets must be divided using “Equitable

distribution” principles. “Equitable” does not always means equal. Instead, a court

must make a fair division of the marital debts and assets after considering all

relevant factors.

Separate vs. Marital Property

Before negotiating the division of marital assets, a determination must be made

regarding what assets are marital property and what assets are separate property.

Only marital assets are divided in a divorce. Separate assets remain the sole


property of the owner of the property. Generally speaking, marital property

includes all assets acquired during the marriage; separate property includes assets

one spouse owned prior to the marriage. Like all rules, however, there are

exceptions to the general rule regarding marital and separate property. The most

common exceptions include:

Property gifted to one party during the marriage may be separate property.

Inherited property will usually be considered separate property even if

inherited during the marriage.

Separate property can become marital property if the asset is “co-mingled”,

meaning the owner of

the property

“mingles” or mixes

the property with

marital property.

If a valid pre-marital

or post-marital

agreement was

executed by the

parties, the terms of

the agreement will determine whether assets are marital or separate

property.

Is a Closely Held Business a Marital Asset?

Only an experienced Florida family law attorney can determine if your closely held

business will be considered marital property; however, absent a pre-marital or post-


marital agreement specifying that the business is separate property, most closely

held business are at least partially marital property. Even if the business was owned

by one party prior to the marriage, there is a good probability that the business has

been co-mingled during the marriage.

Valuing a Closely Held Business

The first step in dividing a business during a divorce is to determine what the

business is worth. Business

owners typically know what

their business earned in

recent years, but many do not

know what the business is

actually worth. A Certified

Business Appraiser is

routinely used to value a

business for purposes of a

divorce. Three methods are

commonly used to value a

closely held business:

Market approach – this methods attempts to value the business based on the

sale of similar businesses in the recent past.

Asset approach – this method values the business by looking at the value of

both tangible and intangible assets and debts of the business.

Income approach – this method looks at past and present income and

converts that into expected economic benefits.


Unique Issues When a Business Is a Marital Asset

When a business is one of the marital assets that must be divided in a divorce, the

process of arriving at an “equitable distribution” of marital property is more

difficult:

Value -- the parties rarely agree on the value of the business. Moreover, two

Appraisers may arrive at significantly disparate values for the business.

Intent – the parties may not agree with regard to the future of the business.

Should the business remain in its current form, change structure, terminate

and re-open as a different business altogether, or be dissolved permanently?

Liquidity – if the business will remain operational with only one spouse continuing

to own the business,

the other spouse must

be compensated for

his/her interest in the

asset. Many small

businesses have few

liquid assets,

presenting a

challenge when it

comes to

compensating the

non-owner spouse.


Factors to Consider When “Dividing” a Business

Determining the value of closely held business in a Florida divorce is only the first

hurdle. Deciding how best to “divide” the business is often an even bigger hurdle.

Factors that are usually considered when deciding how to handle a business in a

divorce include:

Legal ownership – what is the current legal structure? Is the business a

corporation, partnership or sole proprietorship?

Material participation – do both parties actually participate in the operation

of the business or is the business predominantly run by one party?

Profitability – has the

business been making a

profit in recent years? Is it

likely to continue to be

profitable?

Debts – what are the debts

of the business and who is

and will be responsible for

them?

Future intentions –who wants to

continue to operate the business – one, both, or neither or the parties?


Common Methods for “Dividing” A Closely Held Business in a Florida Divorce

With most marital assets one of two things happens in a divorce – the asset is simply

awarded to one of the parties or the asset is sold and the sale proceeds split

between the parties. With a business, neither of those options may be practical

without making some adjustments. Some common ways of handling the division of a

closely held business in a divorce include:

Selling – if both parties agree, the business can be sold, all debts paid, and

then the sales proceeds split between the parties.

Continuing as co-owners – if both parties have been participating in the

business, it may make financial sense to continue as co-owners after the


divorce. Of course, this only works if the parties are emotionally able to work

together post-divorce.

Buying out –one party may “buy-out” the other party. Basically, this involves

the party who plans to continue running the business compensating the other

party for his/her interest in the business. If sufficient liquid assets of the

business are not available to facilitate the buy-out, other marital assets might

be used and/or future profits could be awarded to the non-owner.

Whenever a closely held business is part of a divorce, it complicates theprocess,

even if the parties are committed being amicable.

If you are contemplating a divorce in the State of Florida and have a closely held

business as one of your marital assets, be sure to consult with an experienced

Florida family law attorney with expertise in this area before moving forward.Please

call BEINER, INKELES, and HORVITZ, P.A. at 561-750-1800 so we can assist you in

protecting your rights, while reaching an expeditious settlement.


About Beiner, Inkeles& Horvitz

Beiner, Inkeles& Horvitz, with offices in Boca Raton and New York City, is a boutique law firm (four attorneys with a combined experience of more than 100 years and two paralegals), large enough to have all of the latest, sophisticated modalities to ensure that our clients are receiving cutting edge legal support, yet small enough that each client receives the personal attention of one of our very experienced senior attorneys. We have extensive experience in all areas of family law, including negotiating and drafting Pre-Nuptial and Post-Nuptial Agreements; obtaining relativlely simple, uncontested divorces; litigating complex divorce cases involving child-support, equitable distribution schemes, alimony, and pension and profit-sharing QDRO’s; seeking modification of existing support and visitation Orders.

We also meet with clients to understand their particular familial and financial circumstances, counsel them with regard to how they can pass their wealth to their loved ones as simply as possible, avoiding probate, while reducing or eliminating their potential estate tax exposure. Using Revocable (Living) Trusts, HEALTH CARE Proxies, Pre-Need Guardian Designations, and other such estate planning tools, we attempt to assure that our clients will be cared for and protected both during their lives and thereafter.

We invite you to call for a consultation with one of our senior attorneys to discuss your particular needs and concerns, so that we can advise and counsel you and attempt to resolve your matter amicably and expeditiously. Our firm offers mediation as a way to resolve conflict without lengthy and costly litigation. Stephen Beiner is a Florida Certified Mediator and Harvey Nussbaum now devotes all of his practice to mediation. We can either serve as a mediator to attempt to resolve the pending issues in your matter or we can accompany you to mediation to make sure that your rights are protected during the negotiation and settlement process.

And if you have gotten a bad result in your case and you think the judge has erred, we handle appeals from previous decisions; appeals must be filed within 30 days of the decision being rendered by the Court.

Beiner, Inkeles& Horvitz, P.A. 2000 Glades Road, Suite 110 Boca Raton, FL 33431 Phone: 561.750.1800 Fax: 561.338.3803 Website: www.beinerlaw.com Email: [email protected]

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