Divorce can be difficult and emotional for anyone, but it can be especially complex when a business is involved. In Maryland, dividing a business during divorce can be complicated, and it’s important to understand the applicable laws and regulations.
Is Maryland an Equitable Division State?
In Maryland state law, during a divorce, property division is governed by the principle of equitable distribution, which ensures that the property is divided fairly between the spouses but not always equally.
When it comes to a business, the court will consider various factors to determine how to divide its assets and marital asset, including the value of the business, the contributions of each spouse to the business, and the tax consequences of dividing the business.
Steps in Dividing a Business in Divorce
- One of the first steps in dividing a business in divorcing couples is to determine the value of the business. This can be done by hiring a professional appraiser or accountant who can provide an accurate business valuation. The valuation will consider the business’s assets, liabilities, and future earnings potential.
- Identify marital and separate property: The next step is determining which parts of the business are the marital property (i.e., acquired during the marriage) and which parts are the individual property (i.e., owned by one spouse before the marriage or acquired by gift or gift or inheritance). This can be a complex process, especially if the business started before the marriage or if one spouse owned the business before the marriage.
- Consider the contributions of each spouse: The court will consider the contributions of each spouse to the business. This can include factors such as who started the business, who contributed financially to the business, and who worked in the business. If both spouses contributed equally to the business, the court might decide to divide the business equally. However, if one spouse played a larger role in the business, they may receive a larger share of its assets.
- Assess tax consequences: The court may also consider the tax consequences of dividing the business. Depending on how the business is structured, separating the business assets could result in significant tax consequences for both spouses. The court may consider these tax implications when deciding how to divide the business.
- Negotiate a settlement or go to court: With the help of attorneys and financial advisors, the spouses will negotiate a settlement that divides the business assets fairly and equitably. If the spouses cannot agree, the court may order that the business be sold, and the proceeds are divided between the spouses.
- File a settlement agreement: Once a settlement has been reached or a court order has been issued. The spouses will file a settlement agreement with the court. This agreement will outline the division of the business assets and any other details related to the divorce.
What are the Factors to Consider in the Contributions of Each Spouse to the Business?
Once the value of the business has been determined, the court will consider the contributions of each spouse to the business. This can include factors such as:
- who started the business;
- who contributed financially to the business;
- who worked in the business; and
- another factor that the court may consider when dividing a business is the tax consequences of the division.
Depending on how the business is structured, dividing the business assets could result in significant tax consequences for both spouses. The court may consider these tax implications when deciding how to split the proceeds.
What If Both Spouses Cannot Agree on Dividing the Business?
Suppose both spouses cannot agree on how to divide the business. The court may order that the business be sold, and the spouses divide the proceeds. This is not an ideal outcome for either party, as it can result in a significant loss of value for the business.
Options for Dividing a Business in Divorce
One option for dividing a business is a monetary award, which involves one spouse receiving a cash payment in exchange for their share of the business. This can be a good option if one spouse wants to keep the business and can buy out the other spouse’s share.
Another option is subject division, where the business is divided into two separate entities, and each spouse is awarded one of the entities. This can be a good option if both spouses want to continue running the business but can no longer do so together.
Sell the business: One option is to sell the business and divide the proceeds between the spouses. While there may be better outcomes for business owners, it can be a way to ensure a clean break and a fair division of assets.
Buyout: One alternative approach is for a spouse to purchase the other spouse’s stake in the business. This can be done through a lump sum payment or by trading other assets of equal value.
Divide business assets: If the business has multiple assets, such as property or equipment, the spouses may agree to divide them. For example, one spouse may keep the physical property while the other holds the intellectual property.
Deferred distribution: Sometimes, the court may order a deferred distribution of the business assets. This means that one spouse will retain business ownership for a particular time, and the other will receive their share later.
Importance of Prenuptial Agreements and Postnuptial agreement
It’s important to note that Maryland law also allows prenuptial agreements to protect a business in a divorce. A prenuptial agreement can specify how a business should be divided in the event of a divorce, which can help to avoid lengthy court battles and ensure that both parties are protected.
In some cases, a postnuptial agreement may have been signed before the marriage, which can protect a business in a divorce. “A postnuptial agreement” can specify how a business should be divided in the event of a divorce. This can help to avoid lengthy court battles and ensure that both parties are protected.
How Divorce Lawyers From Divorce With a Plan Can Help?
In conclusion, if you’re going through a divorce in Maryland and a business is involved, it’s essential to understand the applicable laws and regulations. Hiring a qualified attorney can help ensure that your business is divided relatively. Working with a professional appraiser or accountant can help protect your best interests in the business.
Navigating the complexities of property division during a divorce proceeding can be challenging. Working with a knowledgeable and experienced family law attorney is essential. They can help you understand your options and protect your interests.
Divorce With A Plan specializes in assisting clients navigating the divorce process. Contact us today to schedule a consultation and learn more about how we can help you.