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.

The Unresponsive Spouse: Default in a Dissolution of Marriage

When you initiate a divorce by filing a Petition for Dissolution of Marriage with the court, the initial pleadings must be served on your spose via process server. Timing is crucial when it comes to responding to the petition. In Florida the responding party has 20 days from service to file their response. But what happens when your spouse fails to participate in the divorce? If your spouse fails to respond to your divorce petition, you may be wondering what happens next. At Cody Law, we aim to guide you through each step in the process and keep you informed and educated along the way.

What Happens Now?

The first step, after the 20 day period has elapsed with no response, is to obtain a Clerk’s default. From there, once defaulted, the case will proceed without your spouse’s input. The court will require a final hearing in order to enter the Final Default Judgment. The relief you requested is not automatic, just because your spouse has been defaulted however. The court will not grant any requests that are unreasonable, even without the other party’s participation. Even if your spouse does not participate, you will still need to present evidence to the judge and testimony in support of your requests for relief. Depending on your individual situation, the court will need to determine each of the following issues, without your spouse’s input. :

• Division of Assets and Debts: Under Florida’s equitable rules, marital assets and debts are divided “fairly” although not necessarily equally. If you proposed a division of assets in your petition, the judge may follow your proposal as long as it is reasonable. The judge however has discretion to modify the proposed division if it is unfair or does not meet requirements under the law.

• Alimony: If you requested alimony in your petition, you will need to present evidence to the judge showing that you have a need for alimony and that the other spouse has ability to pay. The court can award alimony without the other spouse’s input so long as sufficient evidence is presented showing that alimony is necessary in your case.

• Parental Responsibility, Timesharing and Child Support: Even in a default situation, where there are minor children involved, the court must determine parental responsibility, timesharing, and child support based upon the best interests of the child. Child support is calculated under the Florida child support guidelines contained under Florida Statute 61.30, using the spouses’ financial information and the amount of overnights awarded to calculate the support amount. You should provide your financial affidavit to the court. If your spouse fails to provide financial information, the court may estimate their income based on available evidence.

  Does Not Responding Mean We Stay Married?

  A common misconception is that if a party just doesn’t respond then the divorce can’t happen. Florida is a no-fault divorce state, which means that the court only requires proof that the marriage is irretrievably broken in order to grant the divorce. As long as all procedural requirements are followed, the judge will enter the divorce, even without the other spouse’s participation.

  Even if your spouse is not participating in your divorce, you still need to present your case to the judge and ensure that your requests align with Florida Law. If you have questions about divorce or obtaining a default divorce in Florida, contact our office to schedule a consultation.

Squandering the Nest Egg: Dissipation of Marital Assets

What can you do if your spouse is gambling, spending, going into debt, drinking away, or hiding away marital assets during your divorce? Dissipation of marital assets, or intentional waste/depletion of marital property in Florida is a serious concern. It can include excessive spending (outside of what was typical during the marriage), spending related to an extramarital affair, mismanagement of finances (accumulating credit card debt etc.), intentional waste of marital funds or assets, such as through gambling, and asset devaluation (for example destruction of property, withdrawing money from a 401K or withdrawing large sums in cash), diverting funds to friends or family members to shield it from the divorce process.

Florida Courts typically equitably divide all assets and debts acquired during the marriage. However, if it can be proven that one spouse dissipated assets, the court may adjust the division of assets to create a more fair result. The party proving dissipation of marital assets must establish that the assets in question were part of the marital estate; that the actions taken to deplete the assets occurred without the other spouse’s knowledge or consent; that the spending did not benefit the household/marriage; and that the wasteful behavior occurred during the marriage (particularly close to the time of separation). Florida courts can consider dissipation of assets that occurred after filing and within two years prior to filing for divorce, however in limited circumstances the court can look back further.

Potential Remedies

If dissipation is established, there are several potential remedies the court may consider:

• Unequal property division

• An award of 50% of the dissipated amount

• Allocating assets/debts as separate property

• Penalties

• Issuance of an Injunction

  If the dissipation is ongoing, it may be necessary to request that the court freeze certain marital assets during the pendency of the divorce.

  In proving dissipation, having the proper evidence is pivotal. Having the proper legal representation is important. You should monitor all accounts closely and document any questionable transactions. Your attorney may need to conduct further discovery to get a full financial picture and it may be necessary to utilize a forensic accountant to trace hidden assets. Contact Cody Law, PLLC to discuss your specific situation and whether an unequal division of marital property may be appropriate, as well as other remedies, due to dissipation of marital assets.

Double Edged Sword: When a Parent Withholds Time-Sharing

Emotions almost always run high during a divorce or other family law action, especially when child custody is involved. Florida has two elements that make up custody: Parental Responsibility and Time-Sharing. Time-sharing means how many overnights each parent has with the minor children. Recent law changes in Florida mean that the court now starts with the presumption that equal time-sharing is in the best interests of the child. In order to overcome the presumption of “fifty-fifty” a parent must show by a preponderance of the evidence that an equal time-sharing plan would not be in the child’s best interest. But what if there is no court ordered time-sharing in place yet? Can one parent unilaterally withhold a child from the other? Can doing so backfire?

When no time-sharing order exists, typically both parents have equal rights to the child and may both spend time with the child, even if the child is living primarily in the marital home with one parent. While this sounds simple in theory, it often leads to complex and messy situations if both parents are not willing to co-parent pending a formal order. Until a formal order is entered, there is no clear benchmark for who makes decisions, when and where children should be on each day, or what to do if parents disagree. This often leads to one parent withholding the child from the other, sometimes out of retaliation, confusion, or fear. In reality, often one parent has been the primary caretaker and day-to-day decision maker and may, by default, end up making unilateral decisions for the children while the case is pending. Courts often view withholding a child from the other parent as problematic and potentially harmful.

In some circumstances, for instance where there are immediate concerns for a child’s safety, temporary withholding might be defensible. However the actions should be followed by prompt formal legal action. If the witholding is simply based on personal conflict or retaliation by a parent it will likely not be excused by the court. Under Florida’s best interest factors, maintaining ongoing contact with both parents is a priority, absent any serious safety concerns, any interference with that could backfire, leading to various consequences, including:

• Court ordered make-up time

• Loss of credibility in future proceedings

• Court-ordered parenting education

• Court ordered therapy

• Denial of shared parental responsibility

• Potential loss of timesharing on a permanent basis by the withholding parent

Withholding time-sharing is a double edged sword and it is recommended you seek the guidance of an attorney before making a decision to unilaterally withhold time. Obtaining a temporary time-sharing order while your case is pending can protect both parents and offer consistency and stability for the child. Once a formal time-sharing order is entered, both parents have the ability to enforce the order should conflict arise.

What Can I do if the Other Parent is Withholding Our Child?

If the other parent is preventing you from time-sharing, there are several protections available under Florida Law, including:

• Enforcement of an existing parenting plan

• Contempt

• Request for make-up time-sharing

• Petition to establish a permanent or temporary time-sharing plan

• Petition to modify

In the meantime it is important to document all missed time-sharing exchanges, text messages, voicemails or e-mails denying time-sharing, all notes on your attempts to exercise time-sharing, and any other relevant potential evidence.

Having the guidance of counsel is important when it comes to child custody. Your attorney can help you get your message across to the judge, present crucial evidence, negotiate on your behalf and prevent mistakes in judgment while awaiting an order. If you are dealing with the other parent withholding time-sharing from you or if you believe withholding may be necessary, it is important to speak with an attorney right away. Contact Cody Law to discuss your individual situation and see if a legal remedy is available to you.