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Family Business Divorce

The Importance of Understanding Divorce and Business Assets

If you’re having trouble understanding divorce and business assets in Indianapolis, IN, you’re not alone. Divorce is challenging in many ways, but the stakes can escalate quickly when a family business is involved. Dixon & Mosely P.C. represents individuals in family matters to help shed light on this complex aspect. For those dedicated to safeguarding their enterprise, understanding how the business is treated in divorce proceedings is the first step in proactively protecting it. Here are some key considerations and steps to protect your business and secure its future.

 

If My Husband Owns a Business, Do I Own It Too? 

The other question we often get is, “Is my wife entitled to half my business if we divorce?” Whichever side you’re on, the family business typically becomes part of the marital estate when one spouse files for divorce. Even if the business was founded before the marriage, its increase in value during the marriage or contributions from the non-owning spouse may be subject to division. Courts usually assume a 50/50 distribution of marital assets, but some factors may influence deviations from this rule, such as the business’s origins and operation.

 

Business Valuation 

The business must go through a valuation process to determine its share in the marital estate which is a complex assessment involving evaluating the company’s financial records, assets, liabilities, and projected earnings. Courts may rely on financial experts or CPAs to ensure an accurate, non-biased valuation.

 

Court Considerations 

Judges assess various factors before deciding how to divide or manage the business, such as:

  • The contributions of both spouses to the business
  • Whether the business predates the marriage
  • The necessity of maintaining the business for income or family stability
  • Any pre-existing agreements, like prenuptial or shareholder contracts

 

Steps to Protect Your Business

Effective planning can reduce the risk of financial and operational disruption to your business during a divorce. Here are proactive steps to help safeguard your company:

Before Marriage 

  • Prenuptial Agreements – Drafting a prenuptial agreement is one of the strongest ways to protect a family business. This legal document outlines what happens to the business in the event of a divorce, ensuring clarity and fairness for both parties.
  • Shareholder or Partnership Agreements – If the business has multiple owners, include a buy-sell clause in the shareholder or partnership agreement. This provision allows the business to repurchase a spouse’s interest in the event of a divorce.

During Marriage 

  • Postnuptial Agreements – If a prenuptial agreement wasn’t created, a postnuptial agreement can still establish protections. This agreement can detail how business assets should be handled if the marriage ends.
  • Maintain Clear Financial Boundaries – Avoid intermingling personal and business finances. Keeping the business financially independent strengthens its protection as a separate entity.

During Divorce Proceedings 

  • Negotiate a Buyout – One option is to buy out the divorcing spouse’s share of the business. This can help maintain continuity of operations.
  • Mediate Divorce Terms – Engage in mediation to reach a fair agreement regarding the business. Mediation allows more control over the outcome and can avoid costly court litigation.

 

The Role of a Family Law Attorney

Navigating divorce proceedings involving a family business is complex, and having the proper legal support from a trusted firm like ours is critical. Our family law attorneys can:

  • Advocate for your interests in court
  • Assist with crafting pre- and postnuptial agreements
  • Collaborate with business valuation experts to ensure an accurate evaluation
  • Help negotiate settlements that protect the business’s long-term stability

We understand the legal frameworks and nuances of business division in divorce and provide practical strategies to align with your goals.

 

Securing Your Business and Your Future 

If you need assistance dividing business and processing business assets in a divorce in Indianapolis, IN, Dixon & Moseley P.C. is here to help. We understand your family business is more than just an asset. It represents dedication, hard work, and a legacy you’ve worked to build. By taking proactive measures before and during marriage and enlisting legal expertise, you can protect your business and secure its future. If you have questions or need assistance safeguarding your family business during divorce, contact us today.   

Is the family business that I bought from my dad before I got married, which my grandfather founded 50 years ago, a part of my divorce now?

Probably, “yes.” In Indiana, all assets (and all liabilities) are a part of the marital estate or one marital pot. These assets include property owned by either spouse before the marriage; acquired by either spouse in his or her own right; and/or acquired by their joint efforts. All three types of property are subject to a presumed fifty-fifty division by the trial court.

To preserve the family business, there may be an argument to deviate from the 50/50 presumption or divide the marital estate in such a way as to “cash out” the spouse whose family did not start the business. This option is left within the trial court’s discretion. The best arguments for how to structure such a transaction for a divorce may come from the business CPA or the Indiana family business attorney.

In addition, with many family businesses that have grown steadily over time, the family business lawyers have already worked with its blood-line owners to try to ensure that it stays a family business, within the family, such that it is not apportioned or sold off as a part of any shareholder’s divorce. Protecting the family business can be legally accomplished in various ways.

For instance, if the family business has several blood-related family members who are the owners and shareholders of all of the stock of the company, the family business attorney may have already crafted and migrated a mandatory “sell” provision in the corporate bylaws (shareholder’s restrictions), which has been approved in accordance with the by-law modification provisions set up with the business.

A mandatory “sell” provision directs that in the event of a divorce filing, the business will have its shares valued and the corporation will “buy” this stock and hold it on its books under a lawful buy-sell agreement; the stock of each spouse is the indicator of ownership in the business and its value is the part of the marital estate, not the business itself. However, such buy-sell provisions cannot be adopted after the divorce is on file.

The ultimate end of any such buy-sell provision is that it transforms the stock of the corporation into marital cash, which itself is subject to division by the divorce court. The former stockholder may remain involved in the business as a director or officer of the corporation or merely an employee of the family company. The amount of income derived from this work position would be used for computation of child support, notwithstanding the fact that the value of the stock paid out is a marital asset subject to division, if not valued and apportioned otherwise.

Most all Indiana family business lawyers will protect the business from becoming an alter ego for any one litigant and will have it in some business structure that is recognized under Indiana law. This is sometimes not the case and a problem for personal liability and valuation with a mere sole proprietorship. The value of the business may be equal to the divorcing spouse’s earnings from employment, with little good will or business assets. In some cases where there is abuse or waste of this income, the court can take a number of protective steps to address this, such as ordering an unequal division of the marital estate.

For the most part, a family business of any size (at least one not publicly traded) will complicate the divorce in getting a proper valuation. However, skilled Indiana family law attorneys and the Indiana family business attorney will provide evidence as to a just and reasonable property settlement, and amount of gross weekly income for purposes of computing child support, which the Indiana trial court will carefully consider in every case before making its division of the estate and ordering child support.

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