It may come as a surprise to some, but a divorcing spouse’s financial or ownership interest in a business may be classified as “marital property” by a court when dividing property in a divorce. As an equitable distribution state, Mississippi courts are required to divide marital assets fairly, or “equitably,” between divorcing spouses. Marital assets may include any economic or ownership interest in a business, especially such interests in a closely-held business. Closely-held businesses often include family businesses or other small businesses whereby a spouse is a sole proprietor, shareholder or stockholder, partner, or otherwise owns a financial or ownership interest in the business. Like any other property owned by a spouse in a divorce, in terms of property division, Mississippi courts first classify a spouse’s business interest as marital property, separate property, or a mixed asset (part marital, part separate property).
A business interest acquired by a spouse during the marriage or purchased with marital funds may be considered marital property. MacDonald v. MacDonald, 698 So. 2d 1079, 1083-84 (Miss. 1997). For example, where a husband starts a new business, joins a partnership, or even buys stock in an already existing business during the marriage, the husband’s interest in any of those situations will likely be classified as marital property, and it may be subject to equitable distribution in a divorce. On the other hand, a business interest acquired and owned by a spouse prior to the marriage will generally be classified as separate property. In addition to business interests owned prior to the marriage, any business interest acquired by gift or inheritance during the marriage may be classified as separate property. McKissack v. McKissack, 45 So. 3d 716, 718 (Miss. Ct. App. 2010). But remember, even separate property–including gifts and inheritance–may be classified, or converted into, marital property if it is commingled or designated for familial use during the marriage. Lastly, a business interest may be classified as a mixed asset–a mixture of separate and marital property. The most common example of when a business interest may be classified as mixed property is where the business interest owned prior to the marriage (otherwise classified as separate property) appreciates–or gains financial value–during the marriage. As a result, the “[a]ppreciation of the value of any non-marital asset [separate property] may be taken into account to arrive at a fair division to the extent the non-titled spouse had made a contribution toward the appreciation of value” or where the owning-spouse’s efforts during the marriage caused or contributed to the business interest’s appreciated value. Carrow v. Carrow, 642 So.2d 901, 907 (Miss. 1994). In such a case, the appreciated value of a business interest can be calculated by subtracting the value of the business interest at the time of the marriage from its current value.
After a given business or business interest is classified as either marital property or mixed property, Mississippi courts will then value the owning-spouse’s interest. Valuation of a business interest, especially in closely-held businesses, can be very complicated. As a result, parties to a divorce involving such property often hire experts to value the business or business interest. These experts weigh several different factors and use various methods in assessing a value to the business interest. In many cases, valuation is often a hot-button issue because parties’ rarely agree on the value of the business interest; the owning-spouse often wants the value to be as low as possible, while the non-owning spouse wants it as high as possible. Nevertheless, Mississippi courts will consider expert valuations and eventually adopt or set the value of a given business or business interest. After the value is set on such property, then the court will proceed with distribution.
In any event, it is important to remember that business interests are considered property that may be subject to equitable distribution in Mississippi divorces. And whether a closely-held business or business interest is classified as marital, separate, or mixed property will have an effect on how, or if, such property is divided and distributed following divorce. As always, with any divorce-related issue like property division, it is imperative to employ an experienced divorce and family law attorney. With over twelve years of legal experience in the tri-county area, I have seen my fair share of property division disputes and have helped numerous people through them. If you or a friend should need professional assistance in a divorce, property division dispute, or any other family matter, please do not hesitate to contact the Law Office of M. Devin Whitt for a free consultation at (601) 607-5055.