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Business Interests

Practice Areas

Will you need to address a business interest in your divorce or dissolution? If the answer is yes, we can help.

Experience

Our firm has successfully handled numerous cases involving various types of business interests. For a list of the business interests our firm has worked with in the recent past,click here

Educational Leadership

We educate our clients regarding their rights and duties concerning their business interests. However, we also educate the community.

Attorney Doug Dougherty has authored articles and given presentations on various business interest topics. He is the author of “Protecting Your Business in a Divorce,”an article published in Columbus CEO magazine.

Attorney Dougherty has also written a paper, and given a presentation, on “Valuation of Businesses in Divorce and Dissolution Cases.”The paper and presentation were for the National Association of Certified Valuation Analysts (NACVA). The NACVA is a group of professional business appraisers.

Importance

A business interest may be the most valuable asset owned by the parties. However, if the business has not been successful, it may be a significant liability.

Almost all business interests present numerous complex legal issues. A client looking for a good result should avoid attorneys who do not have knowledge and experience regarding these issues.

Definition – "Business Interest"

A "business interest" is a legal interest in a business. A business is an entity that is operated for the purpose of making money.

Many types of businesses are recognized in Ohio. These include corporations, limited liability companies (LLCs), partnerships, limited partnerships, and sole proprietorships.

Business Interests as Property

A business interest will generally be treated like any other property. A business interest will be analyzed, valued, and divided.

The Five Primary Issues

If a divorce or dissolution involves a business interest, five primary issues must be addressed.

  • Who owns the interest?
  • What interest is owned?
  • What part of the interest is marital property?
  • What is the value of the marital property?
  • How should the marital property be divided?

Each of these issues is addressed below.

First – Who owns the interest?

It must first be determined who owns the interest in the business. The interest may be owned by the husband individually, by the wife individually, or by the spouses jointly. Other ownership structures are also possible. For example, a spouse may own the business with his or her parent.

Second – What interest is owned?

It must then be determined what interest is owned in the business. That is, a spouse may own a 100% interest in the business (the entire business) or may only own a 1% interest in the business (a very small interest).

Third – Is the interest marital property?

If a business interest is owned by a spouse, it must be determined if the interest is marital property or separate property. This is an extremely important issue.

  • Marital Property

Generally, a business interest is marital property if it was obtained during the marriage. A business interest may also become marital property in other ways. If the interest is marital property, then each spouse is presumptively entitled to receive 50% of the value of the interest.

  • Separate Property

A spouse's interest in a business may be that spouse’s separate property if it was:

  • Acquired before the marriage
  • Acquired as a gift
  • Acquired as an inheritance
  • Exempted in a prenuptial agreement
  • Obtained with other separate property

If the business interest is one spouse’s separate property, then that spouse is presumptively entitled to receive 100% of the value of the interest.

  • Mixed Property

An interest in a business may be part marital property and part separate property. For example, if one spouse owned an interest in a business before marriage, and the value of the interest increased after marriage, then the value of the interest owned at the time of the marriage may be the spouse's separate property and the increased value created after the marriage may be marital property.

Fourth – What is the value of the interest?

If a business interest is marital property, the value of the interest must be determined. "Value" generally means fair market value. "Fair market value" generally means the price that a buyer would pay to purchase the business interest.

  • Using Appraisers

Determining the value of a business interest can be extremely complicated.  Generally, a business appraiser must be hired to determine the value of the interest.  Typically, the appraiser will be an accountant with special training or a business broker.

  • Valuation Methods

Two primary methods exist to determine the value of a business: first, the net asset method; and second, the stream of income method.

Net asset value methodThe net asset method values the business by subtracting the value of the business’ liabilities from the value of the business’ assets. This method is frequently used for a small business, a business with limited profits, a business about to close, or a closed business.

Stream of income methodHowever, if a business is earning a significant profit, the value of the business is frequently determined by using the stream of income method. This method considers: first, the stream of income generated by the business; and second, the price a buyer would be willing to pay to a seller for this stream of income.

  • Adjustments to Value

In many cases, the value of a business interest must be decreased if certain facts are present.  For example, the value of a business interest will generally be decreased if a spouse only owns a minority interest in the business or if the interest cannot readily be sold.

Fifth – How should the value be divided?

Various options exist regarding how the value of a business interest can be divided. If the parties cannot agree on how to divide the value, then a court must decide the issue. A court’s three primary options are discussed below.

  • First, one spouse can receive 100% of the business interest.This approach is typically used when one spouse is highly involved with the business and the other spouse has little involvement. With this approach, the spouse who does not receive the business is usually compensated by receiving greater marital assets or fewer marital liabilities.
  • Second, each spouse can receive 50% of the business interest.In essence, this approach makes the spouses "partners" regarding the business. The problems with this approach are obvious. Many former spouses will not be able to work together. However, in some situations, this is a workable option.
  • Third, a court can order the business interest to be sold.With this approach, each spouse is generally ordered to pay 50% of the costs of the sale (for advertising, brokers' fees, etc.). Then, after all costs are paid, each spouse receives 50% of the net profit from the sale.

Firm Experience

Our firm regularly handles cases involving business interests. In the recent past, our firm has handled cases involving the following types of businesses.

  • Candy (chocolatier) business
  • Comic book store business
  • Computer consulting business
  • Funeral home business
  • Graphic design business
  • Ice cream manufacturing business
  • Insurance business
  • Internet adult entertainment business
  • Lawn care business
  • Logistics business
  • Monument (tombstone) business
  • Pipe and pipe fixtures business
  • Printing business
  • Real estate brokerage business
  • Real estate development business
  • Real estate management business
  • Restaurant ownership and management business
  • Retail camera and photography business
  • Shipping business
  • Small recreational vehicle (go cart) business
  • Stained glass manufacturing business
  • Wild animal park and canoe livery business