If you or your spouse owns a business in Howard County, Maryland, you are likely wondering whether it’s at risk, how it gets valued, and what the court can do with it. The answers depend on how Maryland law classifies your business.
This post covers how business assets are treated in a divorce, how they are valued, what the court can and cannot do, and why experienced legal counsel matters.
Is Your Business Considered Marital Property?
The initial consideration is whether your business is classified as marital property. According to Maryland law, marital property encompasses all assets obtained by either spouse throughout the duration of the marriage. Under Maryland Family Law § 8-205, the court may make a monetary award to adjust the equities between spouses based on the value of marital property, including business interests.
Here is what generally determines classification:
- Started before the marriage: A business founded before you married may be considered non-marital property, but only the portion of its value that existed at marriage. Growth that occurs during the marriage may still be divided.
- Started during the marriage: A business formed after you married is typically marital property, regardless of which spouse ran it.
- Funded with marital assets: If marital funds were used to grow or sustain a pre-marital business, those contributions may give your spouse a claim to a portion of its value.
This distinction can be difficult to trace without solid financial documentation.
How Is a Business Assessed in a Divorce in Howard County?
Once a business is identified as marital property or partially marital, it needs to be valued. Courts do not split a business in half. Instead, they assign it a value and factor it into the overall asset distribution. One partner may keep the business while the other is compensated with similar assets, such as home equity or retirement savings.
The Howard County Circuit Court’s Family Law Office oversees contested property cases and may require professional testimony and financial documentation in cases involving complex assets, such as a business.
Common methods for business validation include:
- Asset-Based Approach: Determines the net worth of a business by deducting liabilities from its total assets. Most useful for businesses with significant tangible property.
- Income-Based Approach: Centers on the present and anticipated earning potential. Commonly used for service businesses and professional practices.
- Market Approach: Assesses the business by comparing it to recently sold similar companies to establish its fair market value.
Typically, a forensic accountant or a certified business valuator is hired to conduct the appraisal. Their discoveries could greatly impact not just the division of property, but also the calculations for alimony and child support.
What Can the Court Actually Do With a Business?
A common concern in a Howard County divorce is the fear of losing control of a business you built. It is important to grasp both the strengths and constraints of the court.
As Maryland Family Law § 8-205 makes clear, the court issues a monetary award based on the value of marital property; it does not transfer ownership of a business from one spouse to the other. If the business is in your name, a court cannot simply hand half of it to your spouse.
What the court can do is grant your spouse a monetary award reflecting their equitable share of the business’s marital value, satisfied through other assets, installment payments, or negotiated arrangements.
Maryland adheres to equitable distribution, which aims for fairness rather than strict equality. Courts weigh the length of the marriage, each spouse’s contributions, economic circumstances, and the overall value of each party’s assets.
Protecting Your Business During the Process
There are practical steps business owners can take during a divorce in Howard County. Keeping personal and business finances strictly separate is one of the most important things to do. Mixing funds, such as using business accounts for personal expenses or the other way around, complicates the assertion that a business is distinct from personal property. Well-organized financial records also reduce the risk of the other side claiming hidden income or inflated expenses.
If you possess a prenuptial or postnuptial agreement that pertains to the business, it could greatly restrict what can be divided. The Howard County Circuit Court’s Family Law Office also offers property mediation, which can give parties more control over the outcome than leaving it to a judge.
Getting This Wrong Has Real Consequences
A divorce in Howard County involving a business is not a situation to handle without qualified legal guidance. The classification of assets, their valuation, and the strategy for achieving a fair outcome all require legal and financial expertise working in tandem. Getting it wrong can mean surrendering far more of your business’s value than necessary, or failing to recover your equitable share of an asset built during the marriage.
Contact Milstein Siegel About Your Howard County Divorce
At Milstein Siegel, we represent business owners and their spouses in divorce cases throughout Maryland, including Howard County. We know how much is at stake when a business is on the table, and we work closely with financial professionals to help our clients reach fair outcomes.
If you’re involved in a Howard County divorce and have questions about your business, contact us online or call (443) 230-4674 to schedule a consultation.