Dear Cassie: My husband is self-employed and owns a business. What happens to a business in a divorce?
In a divorce matter, a business is just like any other asset acquired during the marriage: it is subject to equitable distribution.
New Jersey is an equitable distribution state, not a community property state. What that means is that each asset which was acquired during the marriage is subject to division based on the specific facts and circumstances of each case. In rendering this decision, a court is required to examine the 16 factors included in New Jersey’s equitable distribution statute. Some of these factors include “the contribution of each party to the acquisition, dissipation, preservation, depreciation, or appreciation in the amount or value of the marital property,” and “the economic circumstances of each party at the time the division of property becomes effective.”
Importantly, “equitable distribution” does not necessarily mean equal distribution between the parties.
Unlike a bank account, where the value is readily discernable, what a business is worth is much more mercurial. For this reason, you should work with your attorney early on in developing a plan for addressing equitable distribution of any business in your case. It could be necessary to retain a forensic accountant to evaluate the business and arrive at a value for purposes of equitable distribution.
After a value is determined, the next step is determining the non-titled spouse’s share of that asset. The value of a business is rarely evenly allocated between the parties in a divorce. This is because of the risks the titled spouse will bear in continuing to operate the business after equitable distribution, as well as the potential tax consequences to the titled spouse attendant to his or her continued operation of the business.
If you are dealing with equitable distribution of a business in your matter, you should seek the advice of matrimonial counsel.
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Cassie Murphy is a divorce and family law Partner with the Law Offices of Paone, Zaleski & Murphy, with offices in Red Bank and Woodbridge.