Dividing a Business in a Georgia Divorce

If, during the marriage, you or your spouse started your own "closely held" business, such as a partnership, LLC, professional practice, or corporation, whose shares are not publicly traded, the business generally, and in particular the ownership interest (the shares or member or partnership interest), is a marital asset subject to division. And, even a spouse owned a business, or an interest in a business, prior to the marriage, if the business or interest appreciated during the marriage due to the labor or efforts of either spouse, then this appreciation is a marital asset subject to division. Appreciation which is the sole result of "market forces" is not a marital asset subject to division. See, Sullivan v. Sullivan, 295 Ga. 24, 757 S.E.2nd 129 (2014).

Generally speaking, if the business in question is a small business that is solely owned by the spouse, is one with few corp. assets, and is entirely dependent on its revenues from the personal labor of the spouse, there may be little, if any, value in the ownership interest itself. See, Zekser v. Zekser, 293 Ga. 366, 744 S.E.2nd 698 (2013)(trial court found that consulting business had "no intrinsic value" insofar as the business only had one client, had the husband as its sole employee, and its income represented merely the fruits of his individual labor). So, where your spouse has a modest small business, it may not be worth trying to make a marital claim to the business. This is a case by case assessment of course.

However, if there is material value in your spouse's business, or his or her interest in a business (for example a member interest in an LLC or a partnership interest in a partnership), a qualified expert witness is needed to analyze the business and all its financial records and make a valuation of the ownership interest, plus any "enterprise" goodwill, as of both the date of the marriage and the date of the settlement or final trial. The three principal methods for determining the value of a closely held corporation are (1) the income or capitalized earnings method, (2) the market approach method, and (3) the cost approach method. The trial court has discretion to chose which valuation method it will apply. See, Sullivan v. Sullivan, supra.

Unless the spouses started the business together and have demonstrated that they can run the business together after the divorce, the business generally, or the specific ownership interest in particular, will usually be awarded to the spouse who owns the shares. However, the present value of the business or the spouse's specific ownership interest (the spouse may be one of several other owners or partners), as of the date of the settlement or final hearing, can be offset against other marital assets. Alternatively, the court can award "business alimony" to the non-owning spouse, which is an alimony award in the nature of property division, to offset the award of the shares to the owning spouse. See, Miller v. Miller, 288 Ga. 274, 705 S.E.2nd 839 (2010).

Business evaluation cases are costly. First, the party seeking to investigate and value the business must obtain all financial records, showing the value of the business both at the time of marriage and at the time of the divorce. This may not be easy. The business, whether an LLC, corporation, partnership, or professional entity, is a separate person by law who may object to producing sensitive financial information. In order to obtain this information, the business may need to be added as a party. And these records must be obtained before an expert witness or business appraiser can even begin his analysis.

Once the expert obtains all financial information, he or she will seek to make an opinion of the present fair market value of a business or a particular interest based various possible approaches. Any good expert witness is expensive. It would be best if the spouses could agree on a business evaluator so that each is not having to retain and present competing expert witnesses. If the business or interest was owned by one spouse prior to the marriage, it is critical to present evidence of the value of the business at the time of the marriage as well as at the time of the divorce. See, Jones-Shaw v. Shaw, 291 Ga. 252 (2012).

Atlanta Business Evaluation Attorney Russell Hippe is experienced in dealing with these cases, in particular regarding the valuation of professional medical practices. He is further experienced in dealing with expert witnesses, qualifying these witnesses, and presenting their opinions before the court.