Small business considerations in divorce

In Indiana, business assets are usually considered marital assets in any sort of divorce proceeding. This means that your ownership stake in a business is exposed to being divided between you and your ex-spouse in a divorce proceeding. This can be catastrophic to a small business owner whose income is reliant on their business, especially people who are sole owners of the business. The only way to fully protect your business ownership is through a properly written and executed prenuptial or postnuptial agreement in which both sides agree that business assets will not be divided in a divorce and will remain with the spouse that originally owned the business.

If you find yourself in the midst of a divorce now, without such an agreement, there may still be hope. While Indiana law presumes that martial assets should be divided equally between the parties, that does not necessarily mean that each asset gets divided in half. If the parties have sufficient assets to offset the value of the business, or if there are sufficient debts the business owner can take on to balance out the business’s value, then the owner may be able to fully retain ownership of the business. This could be done either through negotiation with the other party, or during a hearing in the divorce case.

An important distinction in business assets is in the difference between personal goodwill assets and enterprise goodwill assets. Personal goodwill assets represent the future earning capacity of that individual. Personal goodwill assets are not divisible during a divorce proceeding between spouses. Personal goodwill assets are attributed to the business owner’s personal reputation, knowledge, experience, or skills in the industry. This distinction is hard to pin down exactly and is very much a case-by-case basis, but a general example would be a solo practice physician. The business valuation here would be mainly comprised of personal goodwill assets as the business is mainly comprised of the physician’s reputation and skill. But this is a very fact intensive inquiry and is different for every business owner. Enterprise goodwill assets are inherent to the business, exist regardless of who owns the business, and are divisible in a divorce. Examples of enterprise goodwill are assets like patents, location of the business, and even the workforce within the business. Neither of these are easy to value and will require a comprehensive inquiry into the business for valuation.

If you are going through a divorce and own a business, please contact McNeelyLaw LLP by calling (317) 825-5110.

Disclaimer: This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.