How Are Family Business Assets Divided in a Divorce?

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How Are Family Business Assets Divided in a Divorce?

According to the Family Owned Business Institute at Grand Valley State University, there are more than 5 million family businesses in the United State. These businesses account for more than ½ of the gross national product and employ more than 60% of the workforce – nearly 100 million people. Many family businesses claim that their success is the personal relationships and commitment to customers that families offer that other businesses can’t. Spouses should work with experienced New Jersey divorce lawyers who understand the complexities of how family business assets are divided in a divorce.

In many families, both spouses contribute to the business. Even if only one spouse runs the business, the other spouse often contributes in many ways – by participating in the businesses when needed, by raising the children so the other spouse can focus on the business, by helping to market the business, and in other ways. Therefore, answering the question of how family business assets are divided in a divorce is not a simple calculation.

So, when spouses divorce, deciding how are family business assets divided in a divorce is often one of the top priorities of both spouses. Except for possibly the marital home, the business is the largest asset and also the source of income for the family.

What decisions need to be made about dividing a family business in a divorce?

Some of the questions each spouse needs to review regarding divorce and family business ownership are:

 

Do you want an ownership interest in the business?

 

Do you care if the business continues or you OK with selling the business?

 

Do you want to work for the business after the divorce is final? If so, can you get along with your spouse?

 

How do you value the business? This is often the most contentious part of a divorce. The spouse who wants to keep the business will work to place a low value on the business. The spouse who just wants to receive their equitable share of the business will work to place a high value on the business.

 

How much income does the business produce? The answer to this question will affect the amount of alimony the person who owns the business may be required to pay and the amount of child support the person who owns the business may be required to pay.

 

Are there adult children and teenagers who are engaged in the business?

 

Who will own or run the business if both spouses die?

 

There will be many other questions about dividing a family business in a divorce depending on the nature of the business. Generally, a professional business requires that a spouse have a professional license. Many businesses, such as restaurants and retail stores, can be run by anyone with the necessary skills and experience.

Some of the answers to how are family business assets divided in divorce may depend on the business structure. Many family businesses are sole proprietorships. Where a business has multiple people running it, there’s usually a partnership agreement that affects how the business is handled in a divorce. Even small family run business may be set up as corporations which also affects divorce and family business assets

Prenuptial agreements and postnuptial agreements may resolve how family business assets are divided in a divorce

If you own or have an interest in a family-run business before you marry, then it’s generally wise to prepare a prenuptial agreement to determine what happens to the business in the case of a divorce. The agreement should be reviewed and possibly updated as the business grows and the desires of the family members change.

Prenups and postnup agreements should establish a way to value the business when the divorce takes place to avoid conflict when the divorce occurs. Doing so can quickly resolve how family business assets are divided in a divorce. Placing a value on the business before the spouses marry also helps determine which part of the business is marital property and which part a spouse owned prior to the start of the marriage.

Steps spouses should take to help determine how family business assets are divided in a divorce if there is no prenuptial agreement, to help resolve a divorce contest.

When spouses divorce, the business is part and parcel of the following divorce issues:

  • Equitable distribution. The fair distribution of marital property.
  • Alimony. The sum one spouse may be ordered to pay the other spouse – largely, to help ensure the spouse who doesn’t work in the business has a viable income
  • Child support. Support is calculated largely based on the income of each parent

 

To help resolve these divorce issues and to simplify how family business assets are divided in a divorce, spouses during the marriage should consider the following steps:

Keep financial records of how much each spouse invested in the business

 

Use written documents to set forth the ownership interests, employment terms, and independent contractor terms – such as income, duties, and hours

 

Keep records of all business expenses.

How is the family business handled in the divorce?

A family business is generally handled, with the help of skilled New Jersey family lawyers, by:

  • Selling the business to a third party. The buyer may then employ a spouse based on his/her skills and customer contacts.
  • Working with your spouse in the business after the divorce. This option generally doesn’t work – except in rare cases
  • Buying out your spouse’s interest. The key issues here are how much the business is worth, what your equitable share is, and the terms of the buyout.
  • Splitting the business. This solution may work, for example, if a restaurant business has two locations and each spouse obtains one location.

At DeTorres & DeGeorge Family Law, we work with financial professionals to help answer – how are family business assets divided in a divorce? We help spouses understand their rights to the business assets and income. We then work to create solutions so that a spouse can either keep their share of the business or obtain financial compensation for giving up their share of the family business in divorce. To talk to a seasoned family lawyer, call us at 908-691-2104 or complete our contact form to schedule an appointment. We have offices in Clinton and Morristown.

Carolyn B. Hand
Carolyn Hand is a passionate and experienced litigator specializing in family law. In 2020, she was named partner at DeTorres & DeGeorge Family Law. Carolyn represents clients in family court in all matters pertaining to divorce, custody...
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