What Happens to a Closely Held Business in a Divorce in Georgia?
Divorce can be a complex process, especially when one or both spouses own a closely held business—or, a business with one or few co-owners. In Georgia, the division of assets in a divorce is governed by the principle of "equitable distribution," which aims to divide marital property fairly but not necessarily equally. If you or your spouse own a business, understanding how it might be treated during divorce proceedings is critical.
1. Is the Business Considered Marital Property?
One of the first steps in addressing a business during a divorce is determining whether it qualifies as marital property. Generally, marital property includes assets acquired or increased in value during the marriage. This includes businesses or portions of businesses started or substantially grown during the marriage. If the business was started before the marriage but grew in value during the marriage, the increased value could be subject to division.
2. How is the Business Valued?
If the business is deemed marital property, the next step is valuation. In Georgia, businesses can be valued using various methods:
Income Approach: Projects future earnings to determine the present value.
Market Approach: Compares the business to similar ones recently sold.
Asset Approach: Assesses the value of the business's tangible and intangible assets.
An expert, such as a forensic accountant or a business valuation specialist, is often needed to perform a comprehensive valuation and testify as to the business’s value in Court.
3. Possible Outcomes for the Business
Once the business's value is established, the court must decide how to address it in the divorce. There are generally three possible outcomes:
Buyout: One spouse buys out the other’s share of the business. This is a common resolution, particularly when one spouse has a stronger role in managing or operating the business. The spouse keeping the business might need to provide cash or other assets to “buy out” the other spouse’s interest.
Sell and Split Proceeds: In some cases, the court may order the business to be sold, with the proceeds divided between the spouses. This is less common, as selling a business can disrupt operations, impact employees, and diminish the value. Additionally, selling a closely held business can be difficult, as it is often the case that a small business is closely tied to the reputation of its owner or that there is a limited market for the sale of such a business.
Co-ownership: In rare instances, spouses may agree to continue co-owning the business post-divorce. This requires a high level of trust and cooperation, which is often difficult in divorce situations.
4. Protecting a Business in Divorce
For business owners, there are steps that can be taken to protect a business from being significantly impacted by a divorce. For example:
Prenuptial or Postnuptial Agreements: These agreements can clearly define the business as separate property or outline specific terms for business division, reducing disputes if divorce occurs.
Proper Recordkeeping: Keeping clear and detailed financial records can help accurately value the business and distinguish between marital and separate assets.
Segregation of Funds: Maintaining separate bank accounts for business and personal funds helps demonstrate that the business was treated as separate property, if the business was owned prior to the divorce.
5. Work with Experienced Legal Counsel
Divorces involving closely held businesses require careful navigation. At Resurgens Legal Counsel, we understand the complexities that arise when business ownership is at stake in a divorce. Whether you are a business owner or the spouse of one, our team can help you understand your options and develop a strategy that protects your interests.
If you have questions about how your business could be impacted by divorce, contact us today to schedule a consultation at 770-765-7550.