For many couples, the most valuable thing they own is not the house. It is the company one of them built. When the marriage ends, the first question is usually whether the business is part of the divorce at all. In Florida the answer turns on three things: when the business started, what money and effort went into it during the marriage, and how its value is measured. Here is how Florida law approaches each of those questions, whether the business was started during the marriage or years before it.
A business started during the marriage is presumed marital
Florida Statute § 61.075(6)(a) defines marital assets to include assets acquired during the marriage, whether by one spouse or both. A company formed after the wedding and before the cutoff date for the case is an asset acquired during the marriage, so it is generally a marital asset subject to equitable distribution.
Whose name is on the paperwork does not change that starting point. Under Florida Statute § 61.075(8), all assets acquired and liabilities incurred during the marriage, individually or jointly, are presumed to be marital unless they are shown to be nonmarital. A limited liability company or corporation owned on paper by one spouse alone, where the other spouse never worked in the business, still begins as marital property. The same is true of a professional practice, such as a medical, dental, accounting, or engineering practice, opened during the marriage.
There are exceptions at the edges. Under Florida Statute § 61.075(6)(b), assets acquired in exchange for nonmarital assets can remain nonmarital. If a business was started entirely with money one spouse inherited, and that money can be traced from the inheritance into the company, there may be a nonmarital claim to part of it. Even then, value created by either spouse's work during the marriage is treated as marital, so a traced investment does not necessarily protect the whole company.
When the business started before the marriage
A business one spouse owned before the wedding is generally a nonmarital asset under Florida Statute § 61.075(6)(b). That is the starting point, not the end of the analysis.
Florida Statute § 61.075(6)(a) also makes marital the enhancement in value and appreciation of nonmarital assets that comes from the efforts of either party during the marriage, or from the contribution or expenditure of marital funds or other marital assets. An owner who spent fifteen years of the marriage working full time to grow a company that existed before the wedding may own a premarital business with a substantial marital share. The other spouse's efforts count too, whether that was keeping the books without pay or running the household so the owner could run the company.
Growth that comes only from outside forces, such as a rising market for the industry, without marital effort or marital money behind it, is generally treated as passive and stays nonmarital. Separating active growth from passive growth is one of the main tasks for the valuation professionals in these cases, and it is often disputed. The questions that usually matter most are these:
- What the business was worth on the date of the marriage, which can be hard to prove years later
- What it was worth on the valuation date the court uses
- How much of the growth came from either spouse's work during the marriage
- Whether marital money was used to fund, expand, or pay down debt for the business
- Whether profits were kept separate or were relied on and used as family money
Timing: the cutoff date and the valuation date
Florida Statute § 61.075(7) sets the cutoff for deciding which assets are marital. It is generally the earliest of the date the spouses entered into a valid separation agreement, another date set by a valid written agreement, or the date the petition for dissolution was filed. A new business started after that cutoff is generally not marital, although money taken from marital accounts to start it can still be an issue.
The date used to value a business is a separate question. The same subsection lets the judge choose the date or dates that are just and equitable under the circumstances, and different assets can be valued as of different dates. When a company's value is rising or falling quickly during the case, the choice of valuation date can matter as much as the valuation method.
Goodwill: what part of the value can be divided
Much of the value of a profitable business is often goodwill, meaning value beyond the equipment, receivables, and cash. Florida divides goodwill into two kinds. Under Thompson v. Thompson, 576 So. 2d 267 (Fla. 1991), enterprise goodwill, the value that belongs to the business itself, can be a marital asset. Personal goodwill, the value that exists only because of one spouse's own skill, relationships, and reputation, is not divided as a marital asset.
In practical terms, enterprise goodwill is value that would stay with the business if the owner walked away: an established name, a location, systems, contracts, and staff that keep customers coming back. Personal goodwill is value that would leave with the owner. The distinction matters most for professional practices and service businesses that depend heavily on one person, where the two kinds of goodwill can be closely intertwined. How a valuation draws that line can change the number significantly.
How the value is measured
Business valuation is not a single formula. Valuation professionals generally look at the business through more than one lens, such as its earnings and cash flow, sales of comparable businesses, and the value of its assets, and then explain which approach fits this business and why. Each side may retain its own valuation professional, or the parties may agree on one.
The disputes usually come down to a handful of judgment calls. What salary should the owner be treated as earning? Which expenses run through the business are really personal? Is a recent drop in revenue real, or is it timed to the divorce? Courts also watch for counting the same income twice, once to set the value of the business and again to set alimony. Mandatory disclosure under Family Law Rule of Procedure 12.285, along with formal discovery, gives both sides access to the tax returns, financial statements, and ownership documents needed to test those answers.
Who keeps the business: buyouts and offsets
Dividing a business does not usually mean cutting the company in half. Florida Statute § 61.075(1)(f) lists, as a factor in equitable distribution, the desirability of retaining an interest in a business, corporation, or professional practice intact and free from any claim of the other party. In many cases the spouse who runs the business keeps it, and the other spouse receives other marital assets of equal value, such as the home, investment accounts, or retirement funds. This is often called an offset.
When there are not enough other assets to balance the division, the parties may agree to an equalizing payment, sometimes paid over time and secured so the receiving spouse is protected. Continuing to own a business together after the divorce is possible, but it is often impractical, and a sale of the business is usually a last resort. How a buyout is funded can carry tax consequences for both spouses, so talk to your tax adviser before agreeing to a structure.
Protecting the business before and during the case
The cleanest protection is planned in advance. Under Florida Statute § 61.075(6)(b), assets excluded from the marital estate by a valid written agreement are nonmarital, and a premarital agreement under Florida Statute § 61.079 can classify a business and its future growth. A postnuptial agreement can address the same subject, and Florida courts review those agreements under Casto v. Casto, 508 So. 2d 330 (Fla. 1987).
Once a divorce is underway, the business should be run the way it always has been. Florida Statute § 61.075(1)(i) lets the court consider the intentional dissipation, waste, depletion, or destruction of marital assets after the petition is filed or within 2 years before it was filed. Unusual transfers, sudden salary changes, or new entities created during the case invite scrutiny and can be held against the spouse who made them.
Reyes Miller Law Group represents business owners and their spouses in Florida divorces from offices in Coral Gables and Boca Raton. If a business is part of your marriage, a free consultation is available to talk through how Florida law applies to your situation.
Questions about your own case?
Yvette B. Reyes, Esq. offers a free first consultation, in English or Spanish, for families in Palm Beach, Miami-Dade, Broward, Monroe, Orange, Hillsborough and Leon counties.
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This article is general information about Florida law, not legal advice about your situation, and reading it does not create an attorney-client relationship. Florida law changes, and every case turns on its own facts. Full disclaimer.
