Ohio is an equitable distribution state regarding dividing property in a divorce. The judge might not split the assets 50/50 between the spouse, but they may divvy things up in a fair way. But what if the couple owned a business? Is the company divided the same as any other asset?
A business is considered property. Therefore, it could be subject to the equitable distribution doctrine. Thus, if it’s a marital asset, which in many cases it is, it will be justly split between the spouses. All facets of the business must be considered to determine its value and how it is separated. Several paths can be taken if the business is a marital asset.
Ohio’s Equitable Distribution Law
In Ohio, when a couple gets divorced, property is split following the equitable distribution law. Under this doctrine, assets are divided between the couple based on what a judge considers fair and just. That may mean that each spouse gets 50% of the property. However, in many cases, a clean split isn’t always possible. Thus, the spouses get assets that are comparable in value.
The equitable distribution law applies primarily to marital property. These are assets acquired by one or both spouses during the marriage. The judge can divide anything falling under this category.
The judge can’t split anything that is separate property. That is, assets one spouse acquired before getting married are not distributable. Generally, the spouse who got it gets to keep 100% of it.
Is a Business Marital or Separate Property?
A business can fall under either the marital or separate property classification. In some cases, it can be both. It is separate property if the spouse who owns it started or bought into it before they were married. The business would be marital property if it were founded or invested in after the couple’s marriage.
But things aren’t always so neat. A business might not be solely marital or solely separate property. In some cases, it can be both. This double classification designation may happen when one spouse starts or buys a business before they get married. After their marriage, they keep an interest in the business. The other spouse might contribute to the running of the business or joint funds may be used to invest in it.
When a business is either strictly marital property or a combination of marital and separate assets, most of it must be divided in the divorce. But how does this happen?
A Fair Division of the Business
Once a business is deemed, in part or in full, to be marital property, it must be split equitably between the spouses because each is considered to have contributed to its operations and entitled to a portion of it.
One of the first steps in determining how a business is split is identifying what percentage is marital property because that’s the portion that can be divided. Generally, a financial expert is called in to help analyze the business and sort things out.
After it’s determined what part of the business is marital property, the business must be valuated to figure out what it’s worth.
The valuation can be accomplished through several methods, including the:
- Asset approach: Also called the book value, this method determines the business’s worth by estimating what would be left after selling assets and satisfying liabilities.
- Market approach: This determines the business’s value by comparing it to similar companies sold recently.
- Income approach: The business’s worth is determined by its ability to generate profits.
Businesses can vary in value. Thus, how they’re handled or separated in a divorce depends on the situation.
A few options for splitting a business include:
- An exchange of assets: If the business is worth a certain amount and the couple has other property with comparable value, one spouse might get the business while the other gets other assets.
- Buying one spouse out: The business might be the most valuable asset the couple has. Thus, it wouldn’t be fair to give it to one spouse completely. But if one of the spouses wants to keep the business intact without splitting it, they might have to buy the other spouse out of their share of it.
- Selling the business: It might not be feasible for one spouse to pay the other spouse for their portion of it. The couple might have to sell the business entirely and split the profits.
Schedule a Consultation with Our Firm
At L. Patrick Mulligan & Associates, LLC, our team can help sort through the complexities of your divorce. We can consult with experts and discuss the legal avenues to explore to facilitate a just division of property.
To speak with a member of our Dayton team, please contact us at (937) 685-7006.