Many people who are going through a divorce are concerned about the division of their assets and the effect it will have on their financial well-being. This is especially true when the parties, or one of them, owns a business. A business is subject to equitable distribution in a divorce, meaning that both people in the marriage have an interest in the business.
The way a business is divided in a divorce is very fact sensitive. In many cases, a divorce action will trigger a need for a business valuation. Essentially, one or both people will retain an expert to offer an opinion on the value of the business. This entails the owner of the business opening the books and records for examination by the experts. The person performing the valuation will advise specifically what is needed in order to complete their examination. The cost of these valuations will vary depending on the size of the business, the amount of information to be examined by the expert, the transparency of the books of the business, and importantly, the cooperation of the parties. The fees for a business valuation may be paid from marital funds, or if the parties have already divided their finances, a judge may decide that one party is responsible for the fees.
When performing a business valuation, the expert will not only look at the financials of the business, but also the other assets belonging to that business. For example, an auto repair shop has a value of the business as a whole, but also the value of the assets, such as the tools and equipment. These assets will be considered by the expert in reaching the final value of a business.
The amount of the business subject to equitable distribution depends on the facts of your specific case. For example, if you owned your business prior to the marriage, it may be necessary for the expert to determine the value of the business at the time of marriage, as well as the current value. If both parties own the business and do not wish to sell the business to a third party, it is likely that a settlement will include one person buying out the other person’s interest. The amount of the buy-out would be based on the value of the business as determined by the expert. Another complication may be whether you own the business alone or with additional partners, as this may limit the amount of value attributable to you and therefore, your spouse.
Even if your spouse does not have an ownership interest in the business, he or she will have an equitable interest- meaning that they have a right to share in the value of the business that accrued during the marriage. While people may be inclined to try to act in a way that they believe protects their business from divorce, a spouse will ultimately continue to have an interest in the business. However, an option to keep a business intact throughout a divorce may be to offer the other spouse more money from another source, such as a retirement account. Offering a larger amount from another source is often a viable option in order to keep a business intact.
If you are considering a divorce and want to investigate your rights and obligations associated with your business, schedule an initial consultation with the attorneys of DeTorres & DeGeorge to discuss the specifics of your matter. Consultations can be scheduled in either our Flemington, NJ office at 908-284-6005, or Morristown, NJ office at 973-264-4100.