How Do Courts Divide a Marital Business in a Maryland Divorce
The short answer is, they do not. Martial property is defined as “the property, however titled, acquired by 1 or both parties during the marriage.” Maryland Code, Family Law § 8-201(3). This includes a marital business acquired by one or both of the parties during the marriage. For more information on marital property division during a divorce proceeding see our Marital Property Blog from August 19, 2009 . Many times the issue of how to solve the 'division' of a martial business in a divorce proceeding is a complicated one due to stock ownership, the value of the business, and consideration of employees of the business.
In accordance with Maryland Code, Family Law § 8-202 (b) when the court determines the ownership of personal or real property, the court may: (1) grant a decree that states what the ownership interest of each party is; and (2) as to any property owned by both of the parties, order a partition or a sale instead of partition and a division of the proceeds. A business is not real or personal property and due to how the stock of the company is held, a sale of the business may not always be a viable option. In the recent case of Turner v. Turner, 147 Md. App. 350 (2002) the Court of Special Appeals found that they could not order sale of the marital business or partition (divide) the marital business, awarding wife 50% of the business, because the husband owned 87% of the shares of stock in the company and Wife owned the remaining shares. The court does not have the authority to re-title stock and does not have the authority to sell it. Therefore in Turner, the court awarded the wife a larger percentage of the parties total value of marital property (a monetary award). What this means is that when a marital business is an issue and stock is held by both husband and wife, but titled individually, in addition to divorce proceedings, an action to dissolve the corporation may also be necessary if parties are unable or unwilling to continue to work/ run the business together.
I recently settled a case, where the husband and wife started a business during the marriage and each party owned 50% of the stock individually. So while the business itself was marital and the individually held stock was also martial, the court would not have been able to sell the business though the divorce proceedings, unless agreed upon by the parties. Ultimately, my client bought out the other spouses interest, after months and months of negotiation. However, in the event a resolution had not been reached, the parties would have had to puruse a corporate dissolution proceeding with respect to the business. If you chose to start a business with your spouse, a simple way to avoid the pitfalls above is to title each share of stock jointly. By titling it to both parties, the Court, through the divorce proceeding, will have the authority to sell the asset.
For more information regarding marital property including marital businesses contact an experienced Maryland divorce attorney.