Closing a Business During a Divorce

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Closing a Business During a Divorce

In New Jersey, the businesses of the spouses are equitably divided when they divorce – if the businesses are marital property. Any business that was started after the spouse married is likely to be considered marital property. If you own a business before you marry, the increase in value of the business will likely be considered marital property – unless you had a prenuptial agreement.

Spouses who own a business do have the right to continue their business after a divorce, but need to consider the ramifications of closing a business during a divorce. Normally, the spouses will need to determine the value of the business, who will keep and run the business, and what equitable share of the business each spouse has. Often, a spouse who owns a business trades off other assets such as his/her interest in a marital home or an interest in the other spouse’s retirement accounts – in order to keep their business.

A spouse who is considering closing a business during a divorce needs to be aware of other legal and practical issues.

  • The other obligations of the spouse who owns a business must be considered when closing a business during a divorce.
  • A spouse generally can’t close a business as a way to avoid paying child support. If a spouse is obligated to pay child support, then he/she needs to use the proceeds of the sale for child support or find other sources of income to pay child support.
  • A spouse can’t shut down a business to avoid paying alimony.
  • A spouse who owes child support may be justified in closing a business during a divorce if he/she is in ill health, near retirement age, or for other valid reasons.

A buy-out agreement is one way of closing a business during a divorce

If one spouse is interested in closing out a business during a divorce, then the other spouse may have a right to buy out the other spouse’s interest in the business – provided the other spouse wants to keep the business running. For example, a husband who owns a restaurant (solely or with his spouse) may decide he wants to retire, wants to start another restaurant, or wants to go into business with another restaurant owner.

While the wife could decide to sell her interest in the business, she could also decide that she wants to run the restaurant – especially now that she doesn’t have to work with her husband. A common option in this scenario is for the wife to offer to buy out her husband’s share of the restaurant business.

In order to buy out her husband’s share:

  • The wife and husband need to agree on the value of the husband’s share of the business. If they can’t agree on their own, they could ask an appraiser who understands the restaurant business to determine the proper value of the business.
  • The wife and husband need to agree on the equitable share each spouse has in the business. If they can’t agree on their own, a mediator or collaborative divorce specialist can help. Otherwise, a family law judge will have to decide.
  • The wife will normally offer some of her marital property to buy out her husband’s interest. If there isn’t enough marital property to buy out her husband’s interest outright, the wife and husband could enter into a loan agreement and possibly a mortgage agreement.

The issues are essentially the same if you want to keep the business you own. You can arrange to buy out your spouse’s equitable share in the business.

There are other practical questions involved with closing a business during a divorce – through the buyout option. The rights of any partners need to be considered. If the spouse just owns stock in a business, then the other spouse will purchase that spouse’s stock as a way of resolving the corporation and divorce issues. Along with ownership interest, the spouse buying the business needs to be sure she/he has the authority to run the business.

Co-ownership is another way of closing a business during a divorce

If the spouses are reasonably amicable, they could agree to both own the business. An agreement should be created to address the ownership interests of each spouse, the liabilities of each spouse, and the responsibilities of each spouse. Again, a lot depends on whether there is a partnership agreement with non-spouses and whether the business is a corporation or a proprietorship.

Selling the business is a common way of closing a business during a divorce

A divorce settlement of a business ownership may be the best way to move forward after a divorce if:

  • The business is losing money
  • The spouse who owns the business has better alternatives for earning an income
  • The spouse who owns the business is in ill health or wants to retire

Selling the business is a common way to resolve how to handle a divorce when you own a business. The basic strategy is to:

  • Determine the equitable interest each spouse has in the business
  • Sell the business
  • Divide the proceeds from the sale of the business according to the equitable interests of each spouse.

For example, if two New Jersey spouses decide to marry, one spouse’s equitable share is 60% and the other spouse’s equitable share is 40%, and the net sales price is $100,000 – then the spouse with the 60% share is entitled to $60,000 and the other spouse is entitled to 40%.

There are many factors to consider that an experienced New Jersey family lawyer understands. Skilled New Jersey family attorneys work to maximize your equitable share and the sales price of the business – when closing a business during a divorce:

  • What is the best way to sell the business?
  • What is the estimated value of the business?
  • Who has the authority to choose a broker?
  • Whether the assets of the business should be sold with the business?
  • What are the liabilities of the business?
  • How much time should be allowed to sell the business?
  • When is the best time to sell the business?
  • What taxes will be due when the business is sold?
  • If it pays to wait until repairs are made or other conditions are met, who is responsible for the business bills until the business can be sold?

The type of business affects the sales price. Selling a professional business is different than selling a retail business. The location of the business affects the sales price.

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At DeTorres & DeGeorge Family Law, we work with business appraisers and business brokers to properly determine the value of your business or your spouse’s and help maximize the sales price when closing a business during a divorce. We review your spouse’s business records – especially if we think he/she is trying to say the business is worth much less than what it really is. Our lawyers discuss whether you might want to run the business. We also review what assets you or your spouse might be willing to give up in order to keep the business.

To speak with an experienced family lawyer who understands your rights and options when a spouse is considering closing a business during a divorce, call us at 908-691-2104 or fill out our contact form to schedule an appointment. We have offices in Clinton and Florham Park.

Erin D. DeGeorge
Erin D. DeGeorge joined DeTorres & DeGeorge, LLC as partner to the firm in June of 2010. Prior to joining DeTorres & DeGeorge, Erin was associated with the national firm of Fox Rothschild LLP and Cutler, Simeone, Townsend, Tomaio & Newmark, LLC...
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