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.

5 Common Mistakes to Avoid During a Divorce

Tensions can often be high during a divorce. It’s important to tread carefully and be aware of your rights and responsibilities during this difficult time. Speaking with a family law attorney can help you choose the best course of action and avoid these common pitfalls.

1. Sending Disparaging Texts or Emails:

   Hold the phone! Text messages, emails and social media posts can be used against you in Court by your ex, to attack your credibility and character. Your words and actions are a huge factor in the Court's consideration of the best interests of any child or children involved in a Family Law matter.

2. Going Pro Se:

   Understanding your rights and obligations is key. A Family Law attorney will guide you through this process and ensure you reach a fair separation agreement or court settlement.

3. Not Putting the Kids First:

   In all Family Law matters involving minor children, the Court will look to the best interests of the child in making decisions regarding time sharing and parental responsibility. Making decisions based on resentment toward the other parent is never in the best interests of the child and will not work in your favor in the eyes of the court.

4. Moving Out of The Marital Home:

   While you should not stay in the marital home if you fear for your safety, moving out could complicate your claim to an interest in the home. If possible, before moving out of the home you should consult an attorney and ensure there is a parenting schedule in place, where there are children involved, to make sure you have continuing access to the children.

5. Hiding or Depleting Marital Assets:

   In every dissolution of marriage, the parties to the dissolution will make a full financial disclosure. The court will review and determine the marital and non-marital assets. In doing so the court can look at transactions after filing for dissolution and up to two years prior to the filing, for any intentional dissipation, waste, depletion or destruction of marital assets.

   Contact Cody Law to schedule a consultation if you need help navigating divorce or any Florida family law issue.

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.

Put it on Their Tab: Awards of Attorneys’ Fees and Costs in a Florida Family Law Case

One big question clients ask, when faced with a family law issue; when can the court award fees and costs in a Florida family law case?

There are several situations where a court may award fees and costs to a party, the first is needs-based and the decision is based on a party’s demonstrated need for their fees and costs to be borne by the other party and the other party’s ability to pay those fees and costs. The reasoning here is that both parties should have equal access to legal representation and a party should not be at a disadvantage due to limited financial resources. Needs-based attorney’s fees may be awarded in cases where one spouse is the primary breadwinner. This type of award can also be granted on a temporary basis. With needs-based attorneys’ fees the courts will consider both party’s income, assets, debts and individual financial obligations.

The second situation where a court can award attorneys’ fees and costs to a party is in contempt and enforcement actions. This is where one party needs to litigate because the other party has failed to comply with a court order, such as non-payment of child support, non-payment of alimony, or not following the court-ordered time-sharing schedule).

The third situation is where there is frivolous or bad-faith litigation. The court may award attorneys’ fees and costs to the other party as a sanction for bringing an action or filing a motion in bad faith (this is governed by Florida Statute 57.105). The court will consider whether a party has unnecessarily prolonged the litigation or been unreasonably uncooperative.

Florida statutes which apply to the award of attorneys’ fees in a family law matter:

• Florida Statute 61.16 allows for an award of attorneys’ fees in dissolution of marriage cases, custody cases, alimony cases, and child support cases.

• Florida Statute 742.045 allows for an award of attorneys’ fees in paternity actions.

• Florida Statute 57.105 provides the basis for recovery of attorneys’ fees when a case is found to be frivolous or lacking legal merit.

• Florida Statute 68.093 (Vexatious Litigant Law)

With any award of attorneys’ fees the court must determine is the requested attorneys’ fees are reasonable for the work performed. The court may deny or reduce fees that are deemed excessive.

In order to request an award of attorneys’ fees and costs, a party must file a motion outlining why the award is necessary and submit supporting financial documents. The party requesting fees must also submit an itemized list of all legal fees and costs incurred, detailing the attorney’s hourly rate. The court will determine whether the fees and costs should be awarded at an evidentiary hearing.

Florida Statute 57.105 Motions

Under Florida Statute 57.105, a party must file a motion alleging that the opposing party or their attorney pursued a claim or defense without any factual or legal basis. Under Florida Statute 57.105 there is a specific notice period required, called a Safety Harbor Notice, which must be served upon the other party, detailing why their claim lacks legal or factual support, to allow correction prior to filing the motion. The opposing party shall be given 21 days from the date of being served with the Safety Harbor Notice to withdraw or amend the baseless claim. If the claim is not withdrawn by the 21-day mark then a motion for sanctions can then be filed with the court. The party seeking relief under 57.105 must prove to the court that the opposing side’s position was frivolous (either not supported by the law or the facts). The Motion must be heard by the judge to determine whether sanctions are warranted against the party, the attorney, or both. If granted, the court can award the winning party’s attorney’s fees and costs as well as imposing sanctions. The court will not award fees and costs under Florida Statute 57.105 if it finds an argument was made in good faith to extend or modify existing law, or if an attornet acted in good faith based on client information.

Florida Statute 68.093 (Vexatious Litigant Law)

Florida Statute 68.093 can also apply in Florida family law matters. This Statute, known as the vexatious litigant law is governed by the Florida Family Law Rules of Procedure. The goal of this section is to prevent individuals from persistently abusing the court system by filing frivolous lawsuits. A “vexatious litigant” is defined as someone who has filed five or more civil actions in Florida within the past five years that were decided against them, or that has been previously found to be a vexatious litigant. Under this statute the court can impose certain restrictions, including issuing pre-filing orders, require a security bond for new cases or even prohibit the filing of new actions without court permission.

Under all of these various statutes, the other party in your family law matter could be responsible for your legal fees. You should discuss your unique situation with a Florida family law attorney, to find out the best course of action and whether your legal fees and costs could be ordered to be paid by the other party. Contact Cody Law in St. Augustine Florida if you’d like help navigating a Florida family law issue.

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.