Is the family that business that I bought from my dad before I got married, which my grandfather founded 50 years ago, a part of my divorce now?
Probably, “yes.” In Indiana, all assets (and all liabilities) are a part of the marital estate or one marital pot. These assets include property owned by either spouse before the marriage; acquired by either spouse in his or her own right; and/or acquired by their joint efforts. All three types of property are subject to a presumed fifty-fifty division by the trial court.
To preserve the family business, there may be an argument to deviate from the 50/50 presumption or divide the marital estate in such a way as to “cash out” the spouse whose family did not start the business. This option is left within the trial court’s discretion. The best arguments for how to structure such a transaction for a divorce may come from the business CPA or the Indiana family business attorney.
In addition, with many family businesses that have grown steadily over time, the family business lawyers have already worked with its blood-line owners to try to ensure that it stays a family business, within the family, such that it is not apportioned or sold off as a part of any shareholder’s divorce. Protecting the family business can be legally accomplished in various ways.
For instance, if the family business has several blood-related family members who are the owners and shareholders of all of the stock of the company, the family business attorney may have already crafted and migrated a mandatory “sell” provision in the corporate bylaws (shareholder’s restrictions), which has been approved in accordance with the by-law modification provisions set up with the business.
A mandatory “sell” provision directs that in the event of a divorce filing, the business will have its shares valued and the corporation will “buy” this stock and hold it on its books under a lawful buy-sell agreement; the stock of each spouse is the indicator of ownership in the business and its value is the part of the marital estate, not the business itself. However, such buy-sell provisions cannot be adopted after the divorce is on file.
The ultimate end of any such buy-sell provision is that it transforms the stock of the corporation into marital cash, which itself is subject to division by the divorce court. The former stockholder may remain involved in the business as a director or officer of the corporation or merely an employee of the family company. The amount of income derived from this work position would be used for computation of child support, notwithstanding the fact that the value of the stock paid out is a marital asset subject to division, if not valued and apportioned otherwise.
Most all Indiana family business lawyers will protect the business from becoming an alter ego for any one litigant and will have it in some business structure that is recognized under Indiana law. This is sometimes not the case and a problem for personal liability and valuation with a mere sole proprietorship. The value of the business may be equal to the divorcing spouse’s earnings from employment, with little good will or business assets. In some cases where there is abuse or waste of this income, the court can take a number of protective steps to address this, such as ordering an unequal division of the marital estate.
For the most part, a family business of any size (at least one not publicly traded) will complicate the divorce in getting a proper valuation. However, skilled Indiana family law attorneys and the Indiana family business attorney will provide evidence as to a just and reasonable property settlement, and amount of gross weekly income for purposes of computing child support, which the Indiana trial court will carefully consider in every case before making its division of the estate and ordering child support.
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