When people get married, they rarely ever anticipate a divorce in their future. However, couples do split and divorces are unfortunately common. Going through this process requires spouses to separate the life they built together. This includes dividing their assets between the two of them. There are some divorces in which it is clear which assets belong to whom. However, if a spouse runs a business, or both spouses run it together, these situations can become tricky. This requires the court to determine the value of the business in order to achieve a fair distribution of properties. It is important to retain the services of an experienced divorce attorney during this time to protect the future of your business during this time.
Marital Property vs. Separate Property
Divorces that occur within a courtroom are subject to a judge’s ruling. This means that the judge can determine how their assets are divided amongst the two of them. In order to do this, the judge must establish marital property and separate property. The differences are as follows:
- Marital Property: Assets that are acquired and deemed both spouses’ property throughout the duration of the marriage
- Separate Property: Assets that are acquired before the marriage and are agreed to stay separate throughout the duration of the marriage
It is important to know that if the business is considered marital property, it can be subject to equitable distribution. This means that it is divided in a fair and just way between both spouses.
How is a Business Valued?
When a business is subject to equitable distribution, it must first be valued. To begin this process, the business must be defined. For example, a “closely held business” is defined by the IRS as a business with more than half of their shares owned by at most five people. Often times, privately-owned companies are owned by family members or married couples. In order to determine its value, a business valuation expert can analyze business records as well as business practices and expenses. In addition to this, the court may request more information regarding the owner’s financial information.
It is important to know that a significant factor in business valuation is how the income generated by the business will impact other marital factors. This includes dividing other assets, alimony payments, or child support payments. This determines the financial gain the business provides the spouse(s). If a spouse did not contribute to the growth of the business, they may be entitled to a lesser percentage.
Protecting a Business
To protect a business during a divorce, couples can plan in advance. To do this, the couple can draft either a shareholder agreement, a prenuptial agreement, or a postnuptial agreement. A shareholder agreement can designate ownership and each party’s interest in the company. A prenuptial or postnuptial agreement can outline how the business value should be divided in the event of a divorce.
Contact our Firm
If you require strong legal representation for matters of divorce and family law in New Jersey, contact The Law Offices of Paone, Zaleski & Murphy to schedule a consultation with one of our experienced attorneys today.