How Do New York Business Owners’ Divorce Affect Business?

Family-Law And Divorce Attorney in East Islip and Suffolk County, NY

Couples who are happily married don’t give much thought to what may happen if they ever decide to divorce. However, a good dose of practicality is needed, especially if you own or co-own a business. Your business’s long-term success depends on understanding these potential problems and establishing some safeguards while your relationship is strong. Divorce will have far-reaching effects on a business. Hiring experienced, knowledgeable, and compassionate business owners’ divorce attorneys is a wise move to take.

Property division is complicated with a business, and legal help is beneficial regardless of the parties’ perspectives. Even if there is animosity, there may be space to reach an amicable divorce to avoid a lengthy and expensive legal fight. When there is no common ground, legal representation becomes even more important. 

If you’re worried about getting a fair divorce settlement in New York, our caring divorce attorney in New York (East Islip and Suffolk County) can guide you through the process and give you legal advice. Schedule an appointment with Jodi Ann Donato Law Office right now to discuss your divorce case and our legal services.

What Will Happen To My Business After Divorce?

The first thing to do to find out what happens to your business if you divorce is to determine whether or not it is a marital asset.

When assessing whether or not a business is a marital asset in the state of New York, it must be determined whether or not the business was established or increased value during the marriage. If your answer is yes, the asset is divisible. If your answer is no, then other variables may need to be considered. 

In addition to divorce issues such as marital assets versus separate assets that is faced by many divorcing couples, you also need to figure out how to appropriately value and apportion your business for the purposes of marital property division.

Regardless if one spouse has no direct financial involvement in the business and it was acquired or started by the other spouse before the marriage, the uninvolved spouse may still be entitled to a: 

  • percentage of the business’ assets or earnings, or 
  • an equitable reward to non-economic contributions made that enabled the business to succeed. 

These contributions often include foregoing one’s own career or educational opportunities in order to take care of the couple’s home and/or look after the children so that the other spouse involved in the business can advance, or sharing skills or knowledge that help the business and allow its value to increase.

Is My Business A Marital Asset Or A Separate Asset?

In New York as well as other states, a business is considered marital property subject to equitable distribution in a divorce when:

  1. A business was created during the marriage.
  2. A business was created prior to the marriage, and the value of the business grew during the marriage.

Furthermore, the law states that this is true no matter what form in which the title is held. This means that if you acquired or launched a business during your marriage, it may be recognized as marital property even if your spouse is not listed as a partner or joint owner.

A business, on the other hand, will be regarded as your own separate property if you acquired it before your marriage or obtained it during your marriage as an  inheritance or gift, or also in exchange for another separate property. 

A prenuptial-agreement or postnuptial agreement with your spouse may also stipulate that your business is to be considered as separate property. However, if the value of a business increases throughout the marriage as a result of contributions from your spouse, at least a portion of the business may become marital property under New York law.

Is The Business Worth Valuing?

Once it has been determined whether the business is part of the marital estate or the sole, separate property of one spouse, a financial expert, such as a forensic accountant, could be needed to give a monetary value to the business interest. This could be done in a variety of ways. The “fair market value” or “fair value” of the business (i.e., what it would be valued on the open market, often with modifications to account for aspects such as whether the person has control of the business’s operations and the unpredictability of the local marketplace) is a typical measure. 

Another way is to utilize the “investment value” of the business interest, which is to establish what the business interest is worth particularly to the spouse who owns it, rather than a comparable market value.

The worth of a business is determined by a number of factors, including

  1. Type of business
  2. The local business environment/market
  3. Business Entity selected (if the business is incorporated or a partnership)
  4. The chosen valuation method
  5. Professional goodwill earned

Apportioning Value

There are numerous ways to allocate the value of a business interest, depending on the parties’ unique financial circumstances. A  business, for example, may be sold and the proceeds divided appropriately. Alternatively, if the business is owned jointly, one party may “buy out” the other. Or, the parties may make their own amicable agreement in which one spouse’s business stake is “swapped” for another asset.  This may be done with a marital settlement agreement or a pre nuptial agreement/post nuptial agreement.

The valuation and division of business assets during a divorce should not be treated lightly. It’s not a simple legal process, and doing it wrong may cost you time and money. 

How Are Marital And Separate Property Categorized And Divided In A New York Business Owners’ Divorce?

The state of New York is not a community-property state. NY, like a dozen other states in the US, adopts the equitable distribution principle. And, although each spouse owns the income earned during the marriage as well as the authority to manage the property in their name, one spouse does not automatically get 50% of the assets during a divorce.

When a couple gets divorced in New York, the judges try to divide their property equitably (fairly). This can result in an equal distribution of the assets, although not always. Instead, the criterion for an equitable property divide is what a judge finds fair, taking into account how each of the divorcing parties contributed into the marriage and what each of them will need to move on.

Equitable Distribution: What Is It?

Equitable distribution is a way of dividing a married couple’s assets in their divorce.  Before the implementation of equitable distribution in New York, the state was a “common law property” state, which meant that the divorce-court divided property owned by either spouse in a divorce based on who held the title. If the title only included one of the spouse’s name on it, that spouse got the property.

New York is now an equitable distribution state. When a spouse applies for divorce, the court must distribute marital property fairly and equitably. Importantly, being fair does not always necessitate an equal division of property. Instead, the judge will seek a fair outcome by taking into account:

  1. the income and property of each spouse when they got married and when they filed for divorce
  2. the length of the marriage 
  3. the necessity for the custodial parent to remain in the family home and utilize or own the personal property inside
  4. the amount of the pension, health insurance, and inheritance rights that either spouse would lose as a consequence of the divorce, valued as of the date of the divorce
  5. whether spousal maintenance has been ordered by the court (alimony)
  6. whether either spouse has an equitable claim to marital property to which that spouse does not have title, based on that spouse’s contribution of labor, money, or efforts as a spouse, parent, wage earner, or homemaker, including contributions to the other spouse’s earning potential (working to put the other spouse through school, for example)
  7. if all marital property is liquid or non-liquid
  8. each spouse’s likely future financial situation
  9. If the marital property includes an element or interest in a business, corporation, or profession, the difficulties of valuing such interest and whether it would be desirable for that interest to be kept intact, free of claims or interference by the other spouse.
  10. the tax implications for each spouse
  11. whether either spouse has squandered marital assets.
  12. if either spouse has transferred or encumbered marital property without fair consideration in anticipation of a divorce, and 
  13. any other condition explicitly found by the court to be a just and proper consideration (N.Y. Dom. Rel. § 236 (B)(5).)

Is a Business Subject to Equitable Distribution?

Yes. In a divorce process, businesses are “property” that the court will split using equitable distribution. However, as previously mentioned, it may be difficult or undesirable to divide interests in a business.

In this case, the court would usually give the actual business to the spouse who runs it, and the other spouse will be awarded other property to offset the loss. (N.Y. Dom. Rel. § 236)

How Should I Handle My Divorce To Protect My Business?

A divorce between two people does not necessarily have to be the termination of the business. Your business and your divorce do not have to end at the same time. During a divorce, business owners strive to preserve the business at any cost. Many business owners wish to shield their businesses from the hazards of divorce. The best way to do this is to draft a legally binding prenuptial or postnuptial agreement that states, among other things, whether the business will be considered separate from the marital estate and/or how the business would be split and distributed in the event of a divorce. Businesses that are not covered by a prenuptial or postnuptial agreement are in danger of future dissolution in a divorce since business valuation is a big part of the equitable distribution process.

Consult Our Divorce Law Attorney If You Are a Business Owner Facing Divorce

If you plan to file for divorce and are worried about what will happen to your business after the divorce, the first thing you should do is consult with a good divorce lawyer. Jodi Ann Donato can fight for your rights and help you in pursuing an equitable division of your business assets

Jodi is a divorce and family law attorney and a member of the Suffolk County Bar Association and New York Bar Association. She is a recipient of the Town of Islip Distinguished Service Award, the Toyota Motors Distributors’ Comptrollers Award for Excellence, and the Reisman Award, among others. She has also been inducted into the East Islip School District Alumni Hall of Fame. Call us immediately for more information on the legal assistance we can provide you. 

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