Divorce and Equitable Distribution of a Corporation

When spouses divorce, marital assets and debts are divided equitably. Typically these marital assets include real property, bank accounts, retirement accounts or personal property. But what happens when spouses own a corporate business? The company and its assets are subject to equitable distribution just like any other type of marital asset under Florida Statutes § 61.075.

The first step is to determine whether the corporation is a marital asset. Absent a prenuptial or post-nuptial agreement stating otherwise the general rule is as follows: If the business was acquired or created during the marriage, then typically it is considered a marital asset subject to equitable division. If the business was acquired or created prior to the marriage date, then typically only the increase in value of the business caused by marital labor or marital funds during the marriage will be subject to equitable division.

Typically the court will determine the company’s fair market value and award the company to one spouse, balancing the division in the equitable distribution of other marital assets. When spouses own interest in the business together, the court will not order them to continue to operate the business post-divorce unless both spouses agree.

Corporation as a Party to the Divorce

A critical consideration to make in a divorce involving a corporation is whether the corporation itself should be joined as a third-party defendant to the dissolution. The decision regarding whether to add a business as a third-party will depend on the type of business entity at issue and the spouse’s claim against the business entity. If a spouse is seeking equitable distribution of property or real property owned by a corporation, then joinder of the corporation is imperative as the family court does not have jurisdiction to adjudicate the property rights of non-parties. See Ray v. Ray, 624 So. 2d 1148 (Fla. 1st DCA 1993).

Adding the corporation as a third-party to the divorce allows the court to have jurisdiction over the corporate entity and to issue orders regarding corporate assets. This can enable the court to compel discovery of the company’s financial records and enforce transfer of shares. Bear in mind that a business can be equitably divided without the necessity of adding the corporation as a party, however if the corporation is not added as a party to the action, the family court will not have jurisdiction to order that corporate assets be transferred as part of the equitable distribution. The corporation should be joined as a party in scenarios where both spouses have access to corporate books, checkbooks, bills and when personal expenses are paid by the corporation.

If the decision is made to add a corporation as a third-party defendant in a dissolution, the spouse joining the corporation must ensure proper service of process on the entity and that there is a basis for personal jurisdiction over the entity. If the business is a foreign entity, the Florida long-arm statute must be satisfied.

Joining a corporation as a party may not be necessary when a party is not requesting a claim against the corporate entity or an unequal distribution in any of the corporation’s property. If the corporation is not added as a party, the court still has the power to prevent the disposal of corporate assets or stock to a third party.

Valuation of the Business

If both spouses work for the business, the contribution of their labor, time and skills and the appreciation of the business value during the marriage makes it highly likely that the corporation will be considered a marital asset.

When one spouse holds a smaller percentage of corporate shares or membership units in the business, Florida courts primary focus is still on the marital nature of the asset rather than the legal ownership structure. The amount of units or shares does not automatically dictate how the value of the asset is divided. The spouse owning the majority of the shares or units may however retain the operational control of the business during the divorce process, however the minority owner still has legal rights to prevent the majority owner from hiding assets and to inspect corporate books, tax returns, and financial registries.

A final note regarding valuation of a business in a divorce is that Florida courts must be careful when balancing the business value and awarding alimony. If the corporation’s income is used to calculate the value of the business (which is then divided), that same income stream cannot be fully counted a second time in calculating alimony. A forensic accountant may be required to separate the business’s true asset value from the personal income it generates for each spouse.

If you and your spouse are facing divorce and one or both or you own a business, you should consult with an experienced Florida family law attorney, to determine how best to handle joinder and valuation of a business as a marital asset. Contact Cody Law to discuss this or any other Florida family law needs.

What Should a Stellar Parenting Plan Include?

Every paternity action or divorce involving minor children in Florida must establish a Parenting Plan. But what exactly is a Parenting Plan and what should a good one include? A parenting plan is a legally binding document that governs all rules that the parties must follow regarding parental responsibility and time-sharing in all child-related matters. Parties can establish a Parenting Plan through agreement (usually following negotiations or a formal mediation), or by presenting evidence at trial, resulting in a court order by the Judge. All terms and conditions in the resulting Parenting Plan must be in the children’s best interests.

Florida Statute §61.13(2)(b) provides a basis for what a court established or a court approved Parenting Plan must contain:

1) a description in adequate detail of how the parents will share and be responsible for the daily tasks associated with the upbringing of the child.

2) a time-sharing schedule that specifies the time the child will spend with each parent.

3) A designation of which parent (or both) will be responsible for healthcare, school-related matters, and other activities.

4) A detailed description of the methods and technologies each parent will use to communicate with the child.

5) The location of exchange of the child for time-sharing purposes.

These provide what, at a minimum, needs to be included for a valid parenting plan, however it’s important to understand that a parenting plan can be as detailed as the parties want to make it. Often times, having a detail oriented plan can avoid future uncertainty and ambiguity and reduce the risk of parties rushing back to court to litigate issues. Parties should keep in mind that as the children grow, the plan should grow with them. Children may not be school aged at the time the Parenting Plan is prepared, but a stellar parenting plan will plan for and address issues ahead of time. Good parenting plans include specification of how the co-parents will communicate with each other, details regarding travel and transportation, choice of activities and payment for extra-curricular activities, which parent’s address will be used for school zone purposes, detailed holiday time-sharing plans (including holidays and events that may be important to your specific family), and a procedure for vacation travel and planning with the children. You should discuss your family’s specific needs with your attorney to establish a Parenting Plan that works the best for you.

Contact Cody Law in St. Augustine Florida if you’d like help navigating a Florida family law issue and designing a parenting plan that addresses the needs of your family.