Many topics must be addressed as part of an overall divorce. Child custody, how children are financially supported, dividing home equity and debts, even who gets how much time with the family dog. If one or both spouses have an ownership interest in a closely held business, however, there is going to be added complexity to the subject of equitable distribution.

Marital property (assets acquired by either spouse from the date of the marriage until the date of a divorce filing or a signed settlement agreement) is subject to equitable distribution in a divorce. That’s the process by which assets and debts are split fairly (or equitably) between the parties. Often this is a 50-50 split, but it doesn’t have to be. As part of negotiations, one spouse may want all or more of one asset in exchange for less or none of another asset. Some assets include premarital contributions.  Others involve partially commingled assets, requiring a careful assessment of which party should end up with how much of each asset.  Without an agreement, the parties would need to resolve equitable distribution of assets and debts by divorce arbitration or a trial.

Alternative models to resolution include negotiations, four-way conferences, collaborative law practice, and mediation.  All such methods give parties more control over their own destiny than an arbitrator or a trial judge would provide.

If you started a business after you married, all of your ownership interest is most likely to be considered marital property. Why? Because marital effort, in New Jersey, is what determines assets within the marital estate, whether income from employment or the creation and running of a closely held business.  If the company started before the marriage, and the non-owner contributed to its marital success, directly or indirectly, then, no matter the form of ownership, the increased value of the business will probably be considered joint marital property subject to fair division between the spouses.

The first step is to determine which spouse has how much equitable ownership in the business. Next, the parties need to come up with the value of the company. Our attorneys, with the help of CPA’s, business appraisers, and other financial experts, will help you develop a market value for the asset, even if it is not being sold on the open market.

Business valuation can be done through an income or capitalized method, a market method, or a cost approach method. The most appropriate method depends on the nature of the business. Though the valuation of a business can be a soft science, it’s also an art. What may happen with a business in the future is a guess, though hopefully an educated one. Given the various factors in coming up with a value, the figure that’s determined is always a best an estimate. Two appraisals by qualified, competent experts could be very different, and sometimes people will use an average, or a weighted average, to determine value.

Where business ownership is at issue, one spouse often buys out the other, either through cash or giving up their interest in another asset or accepting a reduced share. In a business where there are few owners, there may be an ownership agreement spelling out what an owner will do in the event of a divorce.  The more arms-length the negotiated contract, the more enforceable it will be deemed by the courts, an arbitrator, a mediator, or a collaborative process.

A business is often more than just an investment in time, effort, and money. Some people get deeply emotionally invested into the business, so much so that it may have been a factor leading to the divorce. It may be central to the person’s identity. The thought of losing part of it to an estranged spouse is for some people too much to bear. Disputes over distribution of a business can be very heated and a party may resort to illegally hiding business assets or artificially making it appear worth less than it actually is.  Such bad faith tactics can cost parties a lot of money to straighten out the problem, including financial penalties or dismissed pleadings.  You have to work with your lawyers to maximize your gains and minimize your risks.

If you’re considering getting divorced and one or both of you have an ownership interest in a business, the proper valuation of that business could greatly impact the amount of property being distributed. Contact the Family Law specialists at Kingston Law Group.  We will listen to the facts, explain the law, and suggest reasonable approaches and outcomes that are just right for you.

We are compassionate counsel who understands what our clients and their families are going through, as well as tough advocates when toughness is needed.  Call us at 609-683-7400, or contact us online, to schedule a near-term initial consultation at a reduced rate.  We are conveniently located in Central Jersey’s Kingston community. Call today. You will be glad you did.