Proving Pre-Marital Value of a Business

Millions of Americans own their own business.  Small businesses form an important and essential sector of the American economy.  It is not uncommon for everyone in the family to work at the business for years or even their entire lifetime.  The children of the business owners and even the children’s children may make a career out of building the business and helping it to thrive.  When those children get married, their spouses often pitch into the business or at the least offer moral support.  If that couple then gets divorced, the value of the business can become a central issue.  New Jersey is an equitable distribution state, which means that any marital property may be divided by the court while any property owned before marriage or other types of separate property will be exempt from division.  Accordingly, proving the premarital value of a business can be very important, as the increase in value of the business during the marriage may often be marital property that can be divided.

In the case Fox v. Fox, the appellate court recently considered the issue of which party has the burden of proof when the premarital value of a business is at issue.  In that case, the husband had a business that he had founded before the parties were married.  During the divorce, the wife asserted that the value of the business was marital property and was therefore subject to division.  The husband countered by stating the business had value before the marriage began, and therefore part of the value of the business was immune from distribution.  The Court of Appeals noted that in some other courts, the judges had determined that the burden of proof to prove the value to be divided was on the requesting spouse.  The Court of Appeals rejected that analysis in Fox, pointing out that the burden of proof rests with the spouse asserting that some or all of an asset is immune from distribution in a divorce.  Accordingly, because the husband in Fox argued that the premarital value was immune, the burden of proof rested on the husband to demonstrate how much of the value was exempt from distribution.

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