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I cannot tell you how many times I have heard this story… ”COVID was tougher to get through than I realized and my husband [and/or wife] and I are no longer in the same place” or “we’ve just grown apart” or “I think s/he is having an affair, what do I do?” The hardest part of my response is assisting the client with where “their” head is at and ensuring they understand there are many possible “next steps.” Whether a business is a marital asset subject to distribution in a divorce is yet, one more factor to consider.

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This article will walk you through the basics to consider if you own or have any ownership interest in a business. Florida is a “no fault” divorce state. That means that neither side has to show that the other party did anything wrong in order to obtain a divorce. Divorce is, basically, an automatic right for any Florida citizen that is married. If your business started after your marriage and you do not have a prenuptial agreement with your spouse, chances are that the business will be valued and, assuming you want to retain your business, you will likely be required to buy out your spouse at 50% of the value—which is generally valued as of the date a petition for dissolution of marriage is filed. That is generally an exceedingly difficult pill to swallow as Florida is much more generous, overall, to the non-owner spouse as to equitable distribution, as it relates to who gets what, due to the business, rather than states like New York. Pursuant to Florida Statute §61.075,”… in distributing the marital assets and liabilities between the parties, the court must begin with the premise that the distribution should be equal, unless there is a justification for an unequal distribution based on the contribution to the marriage and/or career of the other party, economic circumstances of the parties, duration of the marriage, interruption of personal careers or education, intentional dissipation within the prior two years or anything else to do “equity” and justice between the parties. emphasis added.

If you have a prenuptial agreement, then you are already ahead of the curve. However, it bears mentioning that it is PARTICULARLY important to ensure that your prenuptial agreement requirements for enforcement were met when it was signed AND it is equally important that the correct terminology and terms were used therein. For instance, any work that you perform once you are married (termed “marital labor”) is marital, and subject to equitable distribution, if not exempted pursuant to a proper prenuptial agreement. To take that concept a step further, if there is no prenuptial agreement and you had the business prior to the marriage and that business appreciated in value after the marriage, while you worked for the business, all of the appreciation (termed “active appreciation”) is likely marital and subject to a 50/50 split/buyout. Likewise, the reverse is also true, if the business in this hypothetical decreased in value after the marriage, then the business would likely remain a non-marital asset.

Valuations of a business can be very time-consuming and expensive. However, in my experience, 90% of the time, they will be necessary. A forensic expert will be needed to review and explain whether the business is one of a “going concern” or whether the business is likely to go out of business if a certain employee (likely the owner spouse) were no longer working at the business.

I will explore valuations more thoroughly in part two. However, in the meantime, remember that your business is likely worth what you say it is worth. Thus, if you are seeking financing or bringing on a new investor, etc…there will likely be a financial application identifying values of the company. More times than not, we see many “hopeful” inflated financials being used for these purposes, despite the fact that most of those applications state that it is illegal to make a material misrepresentation to a financial institution.

Keep this in mind the next time your business is applying for credit and a potential divorce is looming in the background.

"The Entrepreneur’s Guide to Divorce; Part One,"&nbsp;by Michelle Gervais was published in&nbsp;<a href="https://edition.pagesuite-professional.co.uk/html5/reader/production/default.aspx?pubname=&amp;edid=f1a10d29-fe61-4922-b864-81832ed35e31">Tampa Bay Business &amp; Wealth Magazine</a>&nbsp;on September 1, 2024.

Michelle M. Gervais

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The Entrepreneur’s Guide to Divorce; Part One

<a href="https://www.blankrome.com/news-and-events/the-entrepreneurs-guide-to-divorce-part-two/">The Entrepreneur’s Guide to Divorce; Part Two</a>

The Entrepreneur’s Guide to Divorce; Part One

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The Entrepreneur’s Guide to Divorce; Part One

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