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Don't Split the Colt! Divorce in Indiana

The breakup of a business partnership is often traumatic. The breakup of a marriage can be much worse. Understanding how Indiana’s divorce law applies to the division of a horse breeding or training business, or any other horse-related enterprise can help reduce the anxiety one may experience in the marital breakup.

Generally, Indiana follows the “equitable distribution” approach to the division of marital assets and liabilities in a divorce. In Indiana, the assets and liabilities of both spouses, regardless of how those assets are titled, are considered “marital property.” For purposes of determining the “marital estate,” it does not matter if an asset was brought into the marriage, or inherited or received through a gift during the marriage. All assets of either spouse or what is owned jointly are considered “marital property.”

Once the marital property is established, the Court is to presume an equal division is best. However, either spouse can argue that he or she should receive more than fifty percent. There are certain factors that can be considered by the Court in determining whether to move off of fifty-fifty in favor of one spouse or the other. Those include looking at the source of the property (e.g. whether the property was brought into the marriage or received by gift or inheritance during the marriage), the earning ability of each spouse, the economic circumstances of each spouse at the time of the divorce, whether there has been economic waste or dissipation during the marriage, or other factors.

Often times, the division percentage is not as important as “what” the Court is dividing and “how” that division occurs. If the “what” includes a business owned by one or both of the spouses, the valuation of that business is critical.

For example, if one spouse has a horse breeding operation, it is in the other spouse’s best interest to have the highest possible value placed on that business interest. Typically, both spouses hire qualified business evaluators to place a value on the business interest. Those evaluations will likely look at the fair market value of the assets (e.g. horses, equipment, contracts, receivables, payables, land, improvements, etc.) and may opine as to any “goodwill” or “blue sky” value that may be involved.

Even if an evaluator’s opinion includes goodwill, the examination does not end there. If any part of that goodwill is “personal” and not “enterprise,” then the personal goodwill is NOT a marital asset. Basically, the difference between “personal” and “enterprise” goodwill focuses on how much of the business of the company relies upon the individual name and reputation of its principle. For example, the practice of a heart surgeon would tend to have a significant amount of goodwill (because people typically choose doctors based upon individual reputation), whereas a fast food chain restaurant would tend to have no goodwill (because people do not, for example, go to McDonald’s because of a specific individual who works there). Often this analysis is complicated and subjective, because most businesses fall in the middle.

It is important to have experts (appraisers and business evaluators) involved in the valuation that have experience and specific knowledge in the equine industry. In the end, valuation will drive the property division.

Keep in mind that the Court, in a divorce case, has the authority to award any marital asset to either of the parties (regardless of whether the asset is titled solely in one spouse’s name) or to order assets sold.

How can a business owner avoid valuation issues, ownership issues and the prospect of a Court controlling the enterprise’s future? The answer is simple: an enforceable premarital agreement. Proper planning with experienced legal counsel PRIOR TO getting married can eliminate many of the “unknowns” that cause anxiety in a divorce.

Understanding the divorce process and being advised properly by knowledgeable and experienced legal counsel can make a difference when faced with the breakup of a partnership, especially a marital partnership.

Contact: Jim Reed at jreed@binghammchale.com.

  • Partner

    Jim Reed has concentrated his practice in the legal aspect of relationship transitions of all types since graduating from law school. He has been involved in divorce cases with some of the largest marital estates in Indiana. He ...

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