Florida is an equitable distribution state, where marital property is distributed equitably during a high net worth divorce, rather than being divided 50/50.
However, the complexity of certain assets and the difficulties in determining their proper value may turn equitable property distribution into a highly complicated procedure.
One or both parting spouses may have operated a business during the course of their marriage and derived most of the income from this business. Or there are cases when the business may have been only a side-venture that did not produce much.
Regardless, adequately categorizing and valuing a business is crucial to having a fair and equitable division of marital property. High net worth individuals may have businesses that are:
- family-owned
- owned and/or managed by both spouses
- partially owned by another partner
- with just one of the spouses involved in the business
Types of businesses in a high net worth divorce
There are several forms of business organizations, which include:
- Sole proprietorships - the simplest form of business organization, where the business is owned and operated by a single person and is usually a service-oriented business. The earnings and losses are included in such a business on the sole proprietor’s personal tax return.
- Partnerships - the most common forms of business organization, formed either through an informal agreement between two individuals or through a complex one. It typically requires two or more people as co-owners for profit.
- C corporations - rare forms of business to encounter in divorce cases, which pay income tax and often experience “double-taxation.” Some owners choose to pay themselves additional compensation, reducing the corporation's taxable income.
- S corporations - avoid the issue of the double-taxation present in C corporations by taxing the shareholders for the earnings.
- LLCs - protect their owners from being held personally liable for corporate actions, and, much like S corporations, owners are taxed just once on business earnings.
There are cases when an ex-spouse may hold a minority or majority interest in a business but not the entire business at the time of the divorce. Their interest in the family business would need to be valued as well. Before any valuation can occur, the business must first be categorized as either separate or marital property:
- Separate property - is what one spouse owned or inherited before the marriage that can become marital property in certain circumstances (when the proceeds or incomes from a business are used to support the marriage or become commingled with other marital property).
- Marital property - is what one or both spouses acquired during the marriage.
Once the business has been classified, the next step is business valuation. A certified appraiser will review the financial records, accounts payable and receivable, and visit any real estate that the business owns. A fair market or investment value will be established, or the sum of money that would be transferred between a buyer and a seller under reasonable circumstances and the amount that a buyer with specialized knowledge or motivation would offer.
When disputes related to the actual value of a business arise, Florida courts will try to split the marital assets equitably:
- If a business is valued higher, this can result in the non-business-owner receiving a larger share of the marital estate.
- If a business is assessed below its value, the non-business-owner might not receive as much of the marital estate as they might otherwise receive.
Florida courts business division
The court has to award the business to one or both parties following the business valuation process:
- in its entirety to either one of the spouses
- by giving the other spouse additional assets
- only a portion to one spouse and the remainder to the other
If the parties agree as to how the marital assets - including the business - are to be divided, a court will honor such an agreement as long as it does not appear one spouse is taking advantage of the other.
Methods of dividing a business in a divorce
Marital assets are distributed equally in a Florida high asset divorce unless there is a justification to deviate from a 50/50 split. There are three ways to divide a marital business:
- Buying your spouse's interest in the business - a buyout only works if the spouse with greater involvement in the business has sufficient funds to buy out the other.
- Selling the business - splitting the proceeds after selling a business is an appropriate option when neither spouse wishes to retain the business or when a spouse wants to keep the business, but there are insufficient funds to compensate the other for their interest.
- Continuing to co-own the business - jointly owning and operating the business after a divorce is not always a good idea. Many spouses cannot successfully remain partners after a high net worth divorce.
Florida court judges do not force parting spouses to work together in a business. Thus, commonly, one spouse will be awarded the business, and the other one their share of the value of the business.
