Indiana follows a “one-pot” theory when determining what property is to be considered part of the marital estate. This “one-pot” theory makes it so that all property, whether acquired before or during the marriage, is part of the marital estate.1 As such, if you or your spouse are a business owner, the business will be considered a part of the marital estate. With that, you may be wondering, “but how will the court determine the value of my business?” This blog provides a brief overview of business valuation for property division upon divorce.
It should be stated at the outset that, when it comes to valuing property, a trial court has a great deal of discretion. In general, the marital pot “closes,” so to speak, when one party files for divorce. This means that property acquired by an individual after the petition for divorce is filed is not considered a part of the marital estate. Once a court fully identifies all marital assets, the court then has discretion to set any date between the date of filing the divorce petition and the date of the hearing for valuation.2 As you can imagine, the date the trial court chooses to value a piece of property can have a huge effect on how the property is finally divided. As our Court of Appeals has explained, “[t]he selection of the valuation date for any particular asset has the effect of allocating the risk of change in the value of that asset between the date of the valuation and date of the hearing.”3
Valuing a business can be a lot more subjective then say, a home or a diamond ring. There are a lot of variables that come with it. One such variable is what is known as “goodwill.” Goodwill is described as the value of a business or practice that exceeds the combined value of the net assets used in the business.4 Goodwill can be classified as “enterprise goodwill,” which is an asset of the business and can be divided upon divorce. On the other hand, goodwill can be classified as “personal goodwill,” which is not subject to division upon divorce. Whether or not your business has goodwill, or whether such goodwill is “personal” or “enterprise,” is an extremely fact-sensitive analysis.
One key to valuing a business is that you must support said value with some sort of evidence. The most common and accepted way of doing this is to get a business appraisal. When it comes to valuing a business, the trial court must choose a valuation within a range (if there is a range) of values supported by evidence.5 For example, say you get a business appraisal and your business is worth $500,000 and your spouse obtains a business appraisal that states the business is worth $1,000,000. The trial court would be required to choose a value somewhere between $500,000 – $1,000,000.
Again, these types of situations are extremely fact-sensitive. Divorces are emotional times for all involved. Not only are they emotional, but oftentimes complex, especially when it comes to property division. Obtaining skilled counsel is key to relieving some of the burden that comes with divorce. This blog was written by attorneys at Dixon & Moseley, P.C. who handle divorces of all types throughout the state as well as a wide variety of business-related issues. It is written and posted for general educational purposes and is not to be construed as legal advice or solicitation for services. It is an advertisement.