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Divorced Spouses Don't Make Good Business Partners

Mon, Dec 10, 2018 at 1:15PM

 

There’s usually a pretty good reason that a couple is getting divorced. In my experience, one of the spouses is unhappy with the other due to incompatibility, infidelity or mental health issues. And, if the parties don’t make good marriage partners, then chances are they won’t make good business partners after the marriage is dissolved. The Florida Fourth District Court of Appeal, in an October 2018 opinion, expressed those same sentiments when it reversed (overturned) a trial judge’s decision granting each spouse a 50% ownership interest in the Husband’s prosthetic business, which was a marital asset. The Appellate Court ruled that “compelling former spouses to remain in business together creates an intolerable situation” and constitutes an abuse of discretion. This is especially true as the evidence showed the parties had an acrimonious relationship. The trial court should have assigned a value to the business, awarded it to the owner spouse and required the owner spouse to buy out the non-owner spouse. The appellate court sent the case back down to the trial court to make the proper findings and ruling.

In my divorce practice, at least 50% of the cases involve a closely held corporation or family business, which requires valuation. Whether it’s a medical, dental or veterinarian practice or a homebuilder, electrician or restaurant, these businesses must be valued if they are marital assets. In many cases, the business or practice started prior to the marriage, but grew in value significantly during the marriage. The increase in value of a pre-marital business during the marriage can be a marital asset. In most of these cases, it is necessary to engage an expert who is skilled and credentialed in business valuation. While it’s not unusual for each party to hire his and her own expert, the better practice is to agree upon a neutral expert to render a fair and neutral assessment of the value. This latter route can save significant money as business valuations typically start at $5,000 but can cost much more depending on the size of the business and the complexity of the valuation.

If you are facing the prospect of a divorce and own a professional practice or family business, you can contact me at 386-257-122 or paulrice@ricelawflorida.com, and I’ll take it from there.

Posted December 10, 2018


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