What Happens with a Georgia Business in a Divorce?

What Happens with a Georgia Business in a Divorce?

Many divorcing couples will not only deal with asset division, child custody, child support, and spousal support, but they will also have to determine how to divide their Georgia business. Most businesses, including partnerships, LLCs, professional practices, or corporations—that do not include publicly traded shares—are considered marital assets. Therefore, these businesses are like any other marital asset subject to division. Even in cases where the business was wholly owned by one spouse before marriage and has not been “commingled” during the marriage, if the business significantly appreciated during the marriage as a result of the efforts and labor of either spouse, such appreciation is subject to division during the divorce.

What are Marital vs. Separate Assets?

Generally speaking, a marital asset is any asset acquired during the marriage, regardless of which spouse’s income paid for the asset. That being said, there are exceptions. Assets acquired by one spouse before the marriage remain separate property unless those assets were commingled during the marriage. Commingling an asset could be accomplished by adding a spouse’s name to the asset’s title or in certain other ways as well.

For example, if one spouse owned a vacation home before marriage, then so long as the house remains only in that spouse’s name, it will be considered a separate asset in the event of a divorce. However, if improvements were made to the house during the marriage, or the house appreciated considerably, then the other spouse could be entitled to a portion of the appreciation or value of the improvements made.

Division of Business Assets During a Divorce

A business is much the same as any asset, although it can be more complex to divide during a divorce. The state of Georgia is considered an equitable distribution state (as opposed to a community property state). This means assets are divided fairly, although not necessarily equally. In some cases, a small business owned solely by one spouse—and depends entirely on the labor of that spouse to garner revenues, could have little ownership value for the other spouse.

When the other spouse has some level of material value in the business, it may require the services of a qualified expert to conduct a full analysis of the business’s financial records. Once this is complete, a valuation will be placed on the business, along with ownership interest. There are three primary ways to determine the value of a business. These include:

  1. The income or capitalized earnings method
  2. The cost approach method
  3. The market approach method

The trial court can choose the method to apply in each individual case. The business—or the specific ownership interest in the business—will generally be awarded to the spouse who owns the business shares. This is true unless the business was started by both spouses, and it has been demonstrated that both spouses can run the business amicably even after the divorce.

A spouse’s specific ownership interest, along with the present value of the business as of the date of the final divorce hearing, can be offset against other marital assets. For example, depending on the specific values of the marital home and the business, one spouse’s interest in the business could be offset by awarding that spouse the marital home.

Business evaluation cases can be expensive and time-consuming. Once the expert has obtained all financial information, the present fair market value of the business will be determined (after first determining whether the business or professional practice is marital or separate property). If the business is separate property that has appreciated in value during the marriage, then the extent of that increase for the non-owner spouse must be determined.

Marital assets, including the business, could be distributed in kind, meaning they are not first sold to convert their value into cash—as mentioned above. In other cases, the court could require that the business be sold, then the cash divided fairly, under the equitable distribution rules of the state of Georgia.

Since most business owners take pride in the work and time they have put into their business to succeed, it can be difficult to find their business must be divided during a divorce. There will be many questions and concerns regarding business holdings and business division. Having an experienced Georgia divorce lawyer can truly make a difference in the outcome of asset division during a divorce, particularly when a business is involved.

Call Our Experienced Atlanta Divorce Attorneys

At Hobson & Hobson, P.C., our Atlanta divorce attorneys know how complicated divorce truly is – especially when you have a business. We work to protect your business and your future throughout the divorce process.

If you are considering a divorce or have questions regarding your specific case, call us today at (770) 284-6153 or fill out our confidential contact form. We can set up a consultation, so you can review all your legal options.

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