How does a Divorce impact a Business Owned by the Parties?
Although it may not be readily apparent to most, businesses, just like real property or investment accounts, are assets that may be subject to equitable division upon divorce in Georgia. See Miller v. Miller, 288 Ga. 274 (2010). Georgia case law makes it quite clear that business, similar to other forms of property, may be divided upon divorce if deemed marital property, or they may be exempt from the equitable division process if they are deemed to be separate property. For further discussion of the marital v. non-marital property in Georgia, see our article addressing this topic. According to the Supreme Court of Georgia:
“Certainly, a closely-held corporation may be a marital asset subject to equitable division in a divorce. And, even a business that was started as the result of separate pre-marital funds may be subject to equitable division if there is an appreciation in the value of the business during the years of the marriage due to the spouses’ individual or joint efforts.”
Jones-Shaw v. Shaw, 291 Ga. 252 (2012) (citing Wright v. Wright, 277 Ga. 133 (2003) and Miller v. Miller, 288 Ga. 274 (2010).
According to Georgia’ Supreme Court, not only may a business that was formed during the marriage be subject to equitable division upon divorce, but a business that was started before marriage or started using pre-marital resources may also be subject to equitable division if the value of the business increased due to the efforts of both spouses. Id. Alternatively, if “the appreciation in value during the marriage does not render the asset a marital one subject to equitable division if the growth is solely a result of market forces. Thus, the key factors are the increase in value, if any, of the asset during the marriage and that any gain is the result of spousal effort, either separately or in conjunction with the other spouse.” Id. (citing Armour v. Holcombe, 288 Ga. 50 (2010)).
Once the presiding court has determined whether the business should be considered marital or separate property, if the business is deemed marital property, the business must then be valued to facilitate division. Generally, three principal methods of calculation may be applied to determine the business’s value in question: the income or capitalized earnings method, the market approach method, and the cost approach method. Miller v. Miller, 288 Ga. 274 (2010). The valuation of a business is a complicated legal and financial endeavor. Thus, it is often necessary for both parties to introduce evidence provided by an accountant or business valuator to aid the court in coming to the appropriate conclusion regarding the value of the business.
Once a business has been deemed marital property, and it has been assigned a value, there are several methods by which a presiding court may order the division of a marital business. If the divorcing couple owns several business interests, the court may order one spouse to retain some interest and the other spouse to keep the remaining interest. Alternatively, a court may award a marital business to one spouse and order that spouse to “payout” the other spouse for their interest in the business. See Brogdon v. Brogdon, 290 Ga. 618 (2012). For example:
Husband and Wife’s marital business interests are worth around $200,000 combined. The presiding court awards Husband ownership of these interests. As an equitable division of marital property, though, the court also orders Husband to pay to Wife $100,000, representing her equitable share of the marital business interests.