When you face divorce in Ohio as a family business owner, it’s critical to understand what will happen to your company and its assets. As institutions in an equitable distribution state, Ohio courts seek to divide family businesses through its standard, a separate vs. marital asset framework. But it can get pretty complex. Issues like business valuation methods, protective measures, and determining the future of the business come into play.
The Property Division Approach in Ohio Divorce
Property division is an important issue in Ohio divorce law that both you and your spouse will need to address. State law rules for equitable distribution, through which courts facilitate the division of marital assets in as fair a manner as possible. Property division is a straightforward approach with most asset types—but things can get complicated when a family business is involved. Factors that courts consider can include:
- Business origin. If the business and its assets were acquired or founded by either you or your spouse before the marriage, it’s typically considered separate property.
- Business value appreciation. If the business’s value increased during the course of the marriage, that increase could be considered a marital asset, even if the business began before the parties married.
- Spouse contribution. If the non-owning spouse contributed significantly to operating the business after getting married, that fact starts making the case for part of the business value being considered a marital asset.
How is a Family Business Valuated During Divorce in Ohio?
Ohio courts typically use any of three metrics to determine the value of a family business during a divorce, including:
- Fair market value. Appraisers can evaluate the business’s assets, income, and other factors and compare it to similar enterprises to determine its value on the market. This is the most common method to evaluate a family business in these circumstances.
- Expected future income. Looking at past income, an appraiser can estimate how much revenue the business can earn by a certain future point. This is another common approach to evaluating a family business.
- Value of business assets. By adding up the value of the assets of the business and subtracting the cost of its liabilities, an appraiser can arrive at an informed net estimate. This method is generally available but not as commonly used as the above two.
How You Can Protect the Family Business When It Comes to Divorce
You can take steps in various stages of your marriage—including when it ends—to protect the best interests of your business in divorce proceedings, including:
- Pre- and post-nuptial. As business partners, you and your spouse may choose to create prenuptial or postnuptial agreements that detail how you would distribute the business in the event of a divorce. In the agreement, you and your spouse may choose to specify that the business will not be subject to marital distribution. You may also choose to agree on both how to evaluate the business and how you would divide the appreciation or depreciation of the company.
- Buy-sell agreement. If your spouse holds a share in the business, you may create a buy-sell agreement to safeguard your business interests. A buy-sell agreement should specify how to determine the price of your spouse’s share of the business and clarify actions that need to be taken. This type of agreement can offer valuable protection in navigating the impact of a divorce on your business. Buy-sell agreements can help reduce confusion in the transfer of ownership interests in a way that can stabilize the business and its value.
- Detailed recordkeeping. As you manage your business, you can help shield it from the effects of divorce by keeping detailed records of all your business capital sources and distinguishing between premarital and marital funds. Further, by keeping business and personal expenses separate, you can clearly distinguish between the financial aspects of your business and personal matters, which can help safeguard your business during divorce.
Next Steps for the Business
If the courts decide that your family business is a marital asset, the issue of its future becomes relevant. Divorcees very rarely continue to operate a business together, but one or both of you may want to keep the company going—especially if it’s a primary source of income—or sell it. Either way, it’s necessary to conduct a business valuation to determine its net worth, including the value of goodwill. Most cases break out into three scenarios:
- Sole ownership: The spouse who was primarily responsible for managing a business may be able to maintain ownership of all business assets. To do so, they will need to determine how to divide other marital property in a way that provides the other spouse with assets of a similar value.
- Co-ownership: If both you and your spouses have worked closely together in the family business, and you’re on good enough terms to continue working together, you may decide to co-own the business and act as business partners going forward. In this case, you’ll need to clarify completely the ownership share of the business, your individual responsibilities toward the business, and whether either of you has the option to buy out the other’s share of the business in the future.
- Sale of the business: If other options aren’t workable, you may both choose to sell the family business to a new owner and divide profits earned from the sale as part of the asset division process.
The complexities of having a family business get compounded significantly during divorce proceedings, which makes it important to hire an experienced divorce attorney.
Get In Touch With Richard P. Arthur
If you are getting a divorce in Dayton, you need to hire a divorce attorney who can represent you and help settle issues with your family business. You can call 937-254-3738 to have a consultation with Richard P. Arthur and discuss the details of your case. Richard P. Arthur can help you get what you deserve out of your divorce, as well as handle child custody and support matters.