Indiana follows a “one-pot” theory when determining what property is to be considered part of the marital estate. This “one-pot” theory makes it so that all property, whether acquired before or during the marriage, is part of the marital estate.1 If you are a business owner, you may be wondering “will my business be considered marital property?” or “how does this affect my business?” In this blog, we look to provide a brief overview of the relationship between divorce and business ownership.
Indiana follows an equitable distribution of property theory upon divorce. This means that property is divided in a “just and equal” manner, not necessarily a 50/50 division. However, there is a presumption that a “just and equal” division is a 50/50 division. An individual who wants an unequal division must overcome this presumption. Additionally, Indiana divides what is known as “marital property” between the parties. Marital property is property owned by either spouse, regardless of if the property was acquired before the marriage or during the marriage. Nor does it matter if the property is titled in only one of the spouse’s names, or if it is jointly titled. All property is presumptively marital property. This means that if you started or inherited a business, whether it be during the marriage or before, it is marital property. With it being marital property, there is a good chance that your business is divided between yourself and your soon-to-be ex-spouse, unless you are able to overcome the presumption.
A common question we get when it comes to businesses and divorce is how the business is valued. Valuing a business can be a lot more subjective then say, a home or a diamond ring. There are a lot of variables that come with it. One such variable is what is known as “goodwill.” Goodwill is described as the value of a business or practice that exceeds the combined value of the net assets used in the business.2 Goodwill can be classified as “enterprise goodwill,” which is an asset of the business and can be divided upon divorce. On the other hand, goodwill can be classified as “personal goodwill,” which is not subject to division upon divorce. Whether or not your business has goodwill, or whether such goodwill is “personal” or “enterprise,” is an extremely fact-sensitive analysis.
These types of situations are extremely fact-sensitive. Divorces are emotional times for all involved. Not only are they emotional, but often times complex, especially when it comes to property division. Obtaining skilled counsel is key to relieving some of the burden that comes with divorce. This blog was written by attorneys at Ciyou & Dixon, P.C. who handle divorces of all types throughout the state as well as a wide variety of business-related issues. It is written and posted for general educational purposes and is not to be construed as legal advice or solicitation for services. It is an advertisement.