Many Maryland counties have their share of high asset divorces. It does not matter whether you are in Howard, Montgomery, Anne Arundel, Baltimore or any other jurisdiction, judges are occasionally required to determine the equitable distribution of millions of dollars of assets. On rare occasions, the assets number in the billions.
Congratulations on creating the enterprise of your dreams! It took hundreds of hours of hard labor, but you did it. And you are even making a profit, perhaps a very good profit.
The only problem is that either you or your spouse has decided that your marriage is not working out, and you have agreed to end your marriage.
Will your business survive? Is your spouse entitled to half of it? If both of you are owners of the stock, can my spouse sell half of my prized business to someone who I do not even know? How will we place a value on it? If it is too high, will I even be able to buy out my spouse?
Great questions, right? These are extremely common scenarios that I see in mediation and divorce, both in Howard County and throughout the State of Maryland, every year.
Are there answers? Yes. And no. It all depends upon the path you and your spouse choose to end your marriage. Let's go over the options one by one. Before doing that, get yourself to an experienced divorce attorney. What you don't know could end your business altogether, and that just is not the American entrepreneurial spirit!
What you will really need is a good education about how Maryland courts deal with the division of assets-and debts-upon the dissolution of a marriage.
All assets acquired from your date of marriage until your date of divorce are called "marital property." This is your marital estate. There are exceptions to the rule, as with many rules. If you inherit an asset, that asset is not marital property. If you receive an asset from a third party, again, it is not marital property. And of course, if you have a written agreement saying that certain property is not marital, then it is not marital property.
That's the simple part. Courts always need to identify what is marital property. Then, courts will place a value on the property. So, how do you place a value on the business you created. It may have no value at all without you at the helm. After all, you created it.
There is an entire field of financial experts who are trained and certified in placing a value on businesses. Valuing a business is an art, but experienced divorce attorneys know what type of expert to find for the right case. There are valuation experts who specialize in certain types of businesses. There are conservative experts. There are liberal experts. There are experts who provide hundred page reports and cost $50,000.00. There are experts who can provide a simplified report for a few thousand dollars.
Again, without hiring an attorney highly experienced in complex family law matters, you will likely get what you pay for and simply hope for the best. Please do not put yourself in that position.
So, you now have a value for your business. Do you have to give half of it up? Will that destroy your creation? Not necessarily. Maryland is not a state where spouses automatically get half of everything. Maryland is what is called an "equitable" state, whatever the heck that actually means. All that we lawyers know that it means is that judges are not required to split assets equally.
Okay, you have a very rudimentary education about how Howard County and other Maryland courts are going to look at dividing the business you created. Now, let's go through your options and see if we can save it.
We are going to look at the following options:
1. Making an agreement between the two of you.2. Having an attorney put together a separation and property settlement agreement.3. Attending divorce mediation.4. Going to court.
I always encourage spouses to try to maintain an open line of communication. There are times when the two of you are so motivated to move forward that you both can simply agree upon a price and a process for moving forward instead of waiting for valuations or involving attorneys and professionals. I cannot tell you that any competent divorce attorney would approve of this process, because it is rare that the two of you would ever be able to approximate the value of the business.
It is a bit more traditional to go to an attorney, have your spouse to go to an attorney, chat about a process for deciding how to identify, value and split all of your marital assets, and then craft a written agreement to resolve all of the issues.
I am a bit partial to divorce mediation. Okay, formal disclosure: I am a divorce mediator, as well as a divorce attorney. The reason I like for spouses to give divorce mediation a try is because it is a civilized, thorough process for seeking a successful resolution for moving on in your lives without the thousands, tens of thousands, and sometimes, hundreds of thousands of dollars that you can spend on attorneys during the divorce process.
Mediation can mean several different processes. Aside from mediators having different styles, there are two distinct categories of mediators: attorneys and judges. The best mediator for a complex business asset is usually a divorce attorney with advanced experience in high asset cases. That way, the attorney/mediator can really dig into the process of setting the value on the asset itself. Divorce attorneys also have extremely creative ideas to help spouses resolve asset disputes that, quite frankly, judges simply do not have the authority to do.
Of course, if one of you chooses to go to Court and have the judge decide the matter, you can. Usually, that result should be avoided unless you have no other option. For example, if the other spouse makes no offer of settlement, you have no alternative except to go to Court.
In Court, each of you will present expert witnesses regarding the value of the business. As I said, it is an art, and only the most experienced divorce attorneys can craft the best arguments for you.
Then there is the judge. The judge will always try to do the best possible judge. But guess what? The judge was an attorney. Who went to law school. Who is likely to have relatively little knowledge about the value of businesses. Are you getting the picture?
The best way for both spouses to get an accurate result, a fair result through an honest, creative process is to find the most experienced divorce attorney and then seek a result that will save the business you have created and allow it to grow and flourish in your post divorce life.
Epilogue: Should you choose to re-marry in the future, invest in the time and money from a highly experienced divorce attorney to craft a comprehensive pre-nuptial agreement.