A divorce is a highly emotional situation. Not only the separation but also dividing marital assets can be complicated. But there are even more unique challenges when a couple seeking a divorce owns a family business together.
The first step is for the courts to decide if the business can be classified as a marital asset.
How to Determine if the Family Business is a Marital Asset
There are several scenarios the court will evaluate to determine if the business belongs to both spouses (marital asset) or one person (nonmarital asset).
The courts may consider the family-run business a marital asset if the company was formed or acquired during the marriage. Or if one spouse started the business before the wedding but it increased in value during their time together.
The judge might rule it a non-marital asset if the couple listed the business in a prenuptial or postnuptial agreement. If the agreement clearly states that the company will continue to belong to one spouse, usually, the courts will not fight that.
Once the court determines that the business is a marital asset, the next step is to determine the company’s value.
How to Find the Value of a Business
An expert, such as a certified public accountant, should perform the valuation of your business. They will look at:
- Tangible Property This includes equipment owned, buildings owned, cash in the bank and more
- Intangible Property This includes how customers, potential customers and others view the business
- Liabilities This includes rent, credit lines, any payments, money owed and more
Once the value of the business is known, the courts can then decide how to best divide this property. New Jersey is an equitable distribution state. This means that all marital property is not automatically divided 50-50.
Determining Equitable Distribution
Equitable distribution does not mean the business and all marital assets are equally divided. Instead, the courts strive to achieve a fair (equitable) distribution to each party.
Some items they will consider are:
- Length of marriage
- How involved was each spouse with the business
- Professional value each spouse brought to the business
- Whether one spouse borrowed money from their family for the company
- How the remaining assets will be distributed
- The ability for each person to earn a similar wage
One spouse may feel that just because they run the business, they should retain 100% of the company. But that is not legally true. The courts will decide what percentage each spouse will keep of the business and all assets.
3 Ways to Divide a Family Business in Divorce
Once the distribution is determined, the next step is to decide what to do with the family business. There are 3 common ways for a divorcing couple to divide a family business:
- One Spouse Will Buy Out The Other Spouse The person who has the greater involvement and dedication to the business may decide to buy out the other, assuming they have sufficient funds. This allows the single owner to run the business without interference from the other individual.
- Continue To Co-own The Business The only way this typically succeeds is if both parties amicably split and can work together in harmony.
- Sell The Business With the business valuation complete; both people now understand the actual value. They can sell the company and split the proceeds.
Working with a New Jersey Divorce and Family Law Attorney
Divorce is a complex and stressful situation. Adding a family business in divorce makes things even more complicated, and each spouse must now decide their intention concerning the company’s future. Working with an experienced divorce attorney will help determine your equitable distribution portion.
Protecting What Matters to Our Clients: Contact Our Ocean and Monmouth County Family Law Attorneys
With experience in divorce litigation for high-net-worth individuals, the New Jersey divorce attorneys at Stolfe Zeigler are ready to find the best solution for your unique situation. We understand that dividing a family business in divorce has different priorities, and we take time to understand the details of your circumstances and protect what matters most.
Contact our attorneys at Stolfe Zeigler today at (732) 240-9555 to get started with an initial case evaluation.
Serving clients throughout Ocean, Monmouth and Burlington counties.
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