Indiana Divorce Involving Co-Owners of Business

When married, co-entrepreneurs are busy getting their business off the ground, they often don’t consider what might happen if they divorce.

It’s understandably not a pleasant scenario to consider, particularly when things are going well. However, a family-owned business run by married couples can quickly tank if the divorce is handled poorly. It may even result in bankruptcy, particularly if a lack of prenuptial agreements, shareholder agreements or buy-sell agreements results in a protracted legal battle over assets.

Lake County, Indiana divorce attorneys have experience in handling cases that involve co-owners of a business. While we recognize that equitable division of property is important, we also recognize that preserving the company’s future may be beneficial for both parties as well. We’re committed to attaining the best results for our clients. more Brave v. Brave, recently heard by the Arkansas Supreme Court, is a good example of how complex these matters can be.

In this case, the husband/restaurant owner filed a complaint for divorce in 2010 after 20 years of marriage. He and his wife had two children and were co-owners of the business.

After settling issues of child custody and alimony, the court ruled that the husband would get the business, but would have to compensate the wife for her share of it. It was determined that the net value of the business was $840,000.

The husband testified that while the wife was initially heavily involved in the company, she became far less so after the children were born.

However, courts recognize that when one spouse leaves the workforce to care for the couple’s children, he or she is still serving an important contributing role that should not be overlooked. That’s why many non-working spouses are still entitled to an equitable share of the assets, even if he or she did not earn the actual cash or make the purchases on their own.

Here, the court initially ordered that the wife’s stake in the firm was half, and that the husband should pay $5,000 monthly until that amount – $420,000 – was paid off.

The husband later appealed, arguing that by forcing him to pay $4,000 a month in alimony (which had been reduced from $5,000) and $5,000 a month for the business was “double-dipping.” He also argued that the court erred in dividing the business as marital property, rather than finding that it was his personal property. Additionally, he took issue with the court’s valuation of the company.

The state supreme court affirmed the lower court’s findings. The court had factored into its determination the “corporate goodwill” of the company, or what its reasonable fair market value is. The husband had argued that the representation of future earnings should not have been considered in determining the value of the firm, as that was his “personal goodwill.”

The court rejected this argument, and the lower ruling was allowed to stand.

Again, these kinds of cases tend to be more complicated than most, and require the help of an experienced divorce lawyer.

Indiana Family Law Attorney Burton A. Padove handles divorce and child custody matters throughout northern Indiana, including Gary and Hammond.

Additional Resources: Brave v. Brave, April 17, 2014, Arkansas Supreme Court More Blog Entries: Transmutation of Non-Marital Property in Indiana Divorce, Feb. 28, 2014, Lake County Indiana Divorce Lawyer Blog