Many couples today run a business together, however when the marriage breaks down, there can be major issues to sort out regarding the business. The couple not only has to divide their “normal” marital assets, they also must determine whether the business will continue, and, if so, how it will be run, or if it won’t continue, how it will be divided. The questions associated with dividing a business can be a major source of conflict, not to mention ongoing litigation. The first thing that must occur is a business valuation. Under New Jersey law, there must be an equitable distribution of the “fair value” of the business.
It is important to understand that “fair value” may result in a totally different number than “fair market value.” Fair value contemplates the value of the business to each person, as well as their contributions to the business. As an example, assume a couple runs a construction business which belonged to one spouse prior to the marriage. The spouse who owned the business prior to the marriage does the bulk of the actual work, prepares bids, hires and fires employees, pays employees and has basically run the business for more than a decade. The other spouse recently quit another job to help run the construction business, and primarily sends out statements each month. The fact that the one spouse owned the business prior to the marriage will be reflected when determining fair value, however the fact that the one spouse does less work for the actual business may or may not be a factor.
How is a Business Divided During a Divorce?
Developing a business valuation in the divorce generally requires an expert forensic accountant, as well as a highly experienced family law attorney who understands applicable legal standards and business accounting practices. Courts will generally consider the following when dividing a business during a divorce:
- Whether the business predates the marriage. If so, then the spouse who had the business before the marriage might be entitled to a larger share. However, if the business predates the marriage, but the other spouse’s contributions have significantly enhanced the business during the marriage those contributions could even out the division of the business.
- If the business predates the marriage, but marital assets were invested in the business, then that fact will be taken into consideration during the division.
- If the business was started during the marriage, then it will be considered a marital asset to be equitably divided.
- Even if one spouse does the bulk of the work for the business, while the other is a homemaker who maintains the household, New Jersey law recognizes that the person maintaining the household allowed the other to build the business, therefore it will still be equitably divided.
All of the considerations pertaining to the specific business, will be considered by the forensic accountant, as well as your attorney. Some of the potential outcomes of having a business during a divorce include:
- Each spouse may retain their interest in the business, reaping the benefits of revenues and profits, and sharing in the losses. It will be determined during the divorce how the business will be run after the divorce.
- One spouse may buy out the other spouse’s share of the business.
- The business interests of one spouse may be offset against other marital assets to maintain the equitable distribution.
- The business may be sold, and the profits equitably distributed between the spouses.
Business Misconduct May Change the Final Distribution
Of course, there are many factors which will be considered during the division of a business when a couple divorces. If the divorce is shaping up to be particularly contentious—because one spouse engaged in business misconduct or attempted to diminish the value of the business, so the other spouse would get less—then this conduct may change the final division of the business. If you suspect your spouse and business partner is engaging in misconduct related to the business, you must tell your attorney immediately, as this is considered dissipation of marital assets. Under New Jersey law, the courts have the discretion to divide the business in a less than equitable manner if it can be shown the partner/spouse breached his or her duties to the business or engaged in misconduct related to the business.
Why Business Valuations Can Be Difficult
Money matters, particularly those associated with the division of a business, can often be a highly contentious aspect of a couple’s divorce. Money matters are simply less open to compromise, since every dollar one spouse gets is one dollar less the other spouse will receive. Especially when a couple’s business provides a primary source of income for the family, a business valuation is critical to arriving at a final, equitable distribution of assets. In Steneken v Steneken, the court found that few assets are as difficult to value as a business, largely due to the fact that “reasonable” people may have vastly differing views regarding how much the business is worth.
How the Williams Law Group Can Help
If a part of your divorce settlement includes a business, it is important that you work with attorneys experienced in the matrimonial field, such as the attorneys at the Williams Law Group. Our attorneys have a solid understanding of how to properly establish the value of a business in the context of a divorce. Our attorneys understand the intricacies of complex property division, and will use that knowledge to help you get the settlement you are entitled to. It is important that you not allow your spouse to dictate how the fair value of the business will be determined. Having an experienced attorney who will work hand in hand with a trusted forensic accountant and fight for your share of the business is crucial. The Williams Law Group will do this and more for your during your divorce. Call the Williams Law Group today at (908) 810-1083 today to schedule a consultation with one of our attorneys.