Divorce and Business Ownership in Georgia

The division of property is one of the most important and disputed issues of divorce, along with child custody. This process can cause many difficulties, not only if the divorce is contested, but also if the spouses are sincerely ready to negotiate and reach an agreement.

In the US, there are so-called equitable distribution states and the community property states.  In the equitable distribution states, property acquired during the marriage typically belongs to the spouse who earned it, and in a divorce, all the property should be divided in an equitable and fair way, considering the plenty of factors of a particular divorce case. The community property states follow the rule that all assets acquired during the marriage are considered to be community property, and in most cases, they are to be divided between the spouses in half.

Usually, only the common property is subject to division (all that was acquired by the spouses during the marriage). Therefore, it’s rather important to determine which property is common and which is separate. After that, the court appoints the value of each property so that it is convenient to divide it in monetary equivalent. All the property is to be divided between the spouses fairly, but not necessarily equally.
Actually, in Georgia, there are no strict rules regarding the division of the property, and each case of divorce is really unique. The court divides only the common property while not touching the separate one. Separate property is everything that was acquired by each spouse before the marriage or due to inheritance or gift from third parties, and it remains to belong to the initial owner.

So, what steps are being taken when dividing a business in a divorce?

• Marital, separate or commingled?

The first thing that spouses must do if they want to arrange an uncontested divorce and resolve property issues out of court is to determine which property is common and which is separate. Also, you should notice that sometimes, marital and separate property can be mixed together, what is called “commingling property.” Some spouses combine their assets intentionally, and others do so without thinking of the consequences. Anyway, commingling property is particularly tricky to evaluate and, therefore, to divide.

The most frequent occurrence is such a “commingling” of business. No matter if both spouses are the partial owners of the business, or only the one spouse was initially the owner of the business, but after marriage, the second spouse contributed to its development and increase of its value, in Georgia, the court will consider all these factors.

• Evaluate the property

The value of small businesses, such as medical practice, a law firm, or even a corporation if its shares are not traded, can be particularly challenging to assess in the process of divorce. The difficulty lies in the fact that the business is not for sale, or because most assets are intangible, but in order to ensure an equitable division of marital property, the actual value must still be established.
In Georgia, even if the divorce is uncontested, this process should involve the forensic accountant, business appraisers, and sometimes, financial and legal experts need to work together to conduct a judicial assessment of the business. And surely, if one party intends to block access to the records or move money in violation of a court decision, then you can’t do without a strong legal representation.

In general, there are two ways to handle the business-related issue in a divorce. If neither spouse wants to keep the business going, liquidation is one of the simpler options. This simplifies business valuation (as there is no need to forecast future income), and therefore the judge can share the income from the sale of the business given the list of factors contained in the state family law, as if it concerns bank accounts, income from the sale of real estate, and so on.

If the business is not for sale, in most cases the ownership of the business remains with only one party. However, it is worth considering that the value of a business can play a role in determining the division of other property (for example, real estate) or in ordering spousal support (alimony).
But of course, the most reliable ways to protect a business should be thought out in advance – before the divorce, or even before the marriage. These include:

• Prenuptial Agreements

A prenuptial agreement is the most comfortable and affordable way to protect the business in the event of a divorce. It allows settling in advance different financial issues which may arise in the process of divorce. What’s really good, is that the premarital agreement allows taking into account the individual wishes of the parties and intentions to divide their business in some special way not guided only by the state rules. Please notice, that according to the recent opinion polls, %15 of divorced Americans regret not making a prenuptial agreement.

• Shareholder use, partnership or purchase/sale agreement.

Such agreements may include the requirement that unwed shareholders provide the business with a marriage contract before the marriage, as well as a waiver from the future husband/wife that removes them from any future business interest.

Also, these agreements provide an opportunity to prohibit the transfer of shares without the approval of any other shareholders or to agree that they have the right to purchase shares or shares of one or both spouses in a case of dissolution of the marriage.

• Postnuptial agreements

Postnuptial agreements are often used as updates to existing prenups, however, if the parties don’t have a prenup, a postnup still may be an option. Although it is usually signed after marriage and therefore has less authority, it contains nearly the same information about assets and property, as a prenup does.

In the postnup, you can point out that if there’s a dissolution of the marriage, each party is entitled to a set amount of money or, for example, a portion of assets before a specific date.