Divorce is complicated and even more so if one or both spouses own a business. Given that a business may be considered a marital asset subject to division, working with a business-savvy divorce attorney is essential.
At Aiello & DiFalco, we help business owners throughout Long Island and New York City navigate the complexities of divorce. Although marital property must be divided in a divorce, a marital breakup should not jeopardize your life’s work.
When you meet with us, we will take the time to learn about your business, explore ways to protect it in a divorce, and help you negotiate a fair division of your marital assets. You can depend on us to help you make informed decisions about your business and future.
Is a Business Considered Marital Property?
Only marital property (assets acquired during the marriage) is subject to division in a divorce. Each spouse retains their own separate property. Generally, if the business was formed during the marriage, it may be considered marital property subject to division. Conversely, a business created before the marriage is considered separate property, but the appreciation in the value of the business might be subject to distribution.
While this seems straightforward, several factors can cloud the picture. Suppose the spouse who was not the original owner contributed to the growth or development of the business. In a case like this, regardless of the circumstances, it takes an experienced divorce attorney to protect your interests. Or suppose a spouse acquired part of the business before the marriage but then bought out their partner or inherited the business from a family member.
How Is a Business Divided in a Long Island Divorce?
Several factors are at play in dividing business assets in divorce, such as:
- The value of the business – We regularly collaborate with business valuation accountants, business and personal accountants, and other financial professionals to determine appropriate valuations. Our attorneys will also help you gather supporting financial records, profit and loss statements, balance sheets, profit and loss statements, and other financial documentation.
- The type of business – Businesses typically have tangible assets such as equipment and real property, as well as goodwill (e.g. reputation, the value of long-term customers), other factors like seasonality or cash businesses might make a significant difference in the process
- Each spouse’s investment in the business – Did both spouses contribute to the business in terms of time and/or money? Sometimes each spouse is listed as an owner of the business even though one party actually runs the business.
- Business liabilities – Business debt, lawsuits, and other liabilities can impact the value of the business. This is especially true after Covid relief programs such as PPP loans and EIDL loans.
- Other interests – Does the business involve owners, partners, investors, or others with interests in the business? Are there passive or active investors who co-own a portion of the business?
If the court finds the business is marital property, it is very unlikely that it will be divided equally between the spouses. The court will award a larger share to the party who started the business or made more contributions and distribute a smaller percentage of the value of the business to the other spouse. If the business was started before the marriage, the court will determine whether the value of the business appreciated during the marriage and how the other spouse contributed to that appreciation or the marriage generally in order to determine such party’s equitable interest in the business.
Dividing a Business in Divorce: Buyout and Offsets
Because a jointly owned business is not practical post-divorce (in most cases), there are two options – a buyout or offset:
Buyout
In a buyout, one spouse buys out the other party’s interests in the business, either with financing or through a structured buyout.
Offset
An offset may be the best option for the party who owns the business. This involves retaining their interest in the business in exchange for other assets of equivalent value (e.g. the family home, bank accounts, vehicles).
Determining the value of the business and each spouse’s equitable share is challenging. Trust Aiello & DiFalco to guide you through the process and protect your interests.
A Prenuptial/Postnuptial Agreement Can Protect Your Business
If you own a business and are about to marry, our attorneys can help you negotiate and prepare a prenuptial agreement outlining the terms of a buyout or offset. Similarly, for couples already married, a postnuptial agreement can outline the division of a business in divorce, particularly a jointly owned business. This, in turn, will protect you and your business or share of a business in the case of a looming divorce.
Contact Our Experienced Long Island Business Division Divorce Attorney
Business asset division in a divorce is challenging. Unless the spouses are partners in the business, there is typically a disparity in each party’s involvement in the growth and development of the business. Sorting through the details and arriving at a fair and equitable distribution of your marital assets takes a knowledgeable divorce attorney. Contact our office today for a consultation.