Divorce is a challenging subject for business owners, particularly when the business experienced growth and change throughout your marriage. In New Jersey, where equitable distribution laws govern the division of marital property, determining the value of a business and its fair division can become complex. If you’re a business owner facing divorce, understanding how your business may be affected is crucial to protecting your financial future. Here is what business owners need to know about divorce in New Jersey.
Key Takeaways
- In New Jersey, businesses started or grown during the marriage are considered marital property and subject to equitable distribution.
- Several approaches are used to value a business, including asset-based, income-based, and market-based methods. A professional appraiser is essential for an accurate valuation.
- Common methods for dividing a business in divorce include a buyout, co-ownership, or selling the business, with the proceeds split according to the divorce settlement.
- A business does not have to be divided if it is separate property (i.e., owned before marriage), but any increase in value during the marriage may be subject to division.
- Prenuptial or postnuptial agreements, proper business structuring (like LLC or corporation), and detailed records can help protect your business in the event of divorce.
Accurate business valuation is critical for equitable asset division in divorce.
Businesses and Divorce
In New Jersey, assets acquired during the marriage are typically considered marital property and subject to equitable distribution. This includes businesses that were either started or grown during the marriage. If one spouse owns a business, it may be considered part of the marital estate, and its value must be determined to ensure a fair division.
For businesses owned before the marriage, New Jersey law considers the portion of the business that grew during the marriage to be marital property. Any increase in value due to the efforts of either spouse or joint efforts may be subject to division.
What is Business Valuation?
During a divorce, marital assets will face valuation. This means that the business is evaluated to determine how much it is worth and how it will be split. Several methods are used to value a business, including:
- Asset-based approach: This method calculates the value of the business based on its assets, including tangible and intangible property.
- Income-based approach: This approach considers the business’s potential future earnings.
- Market-based approach: This method compares the business to similar businesses recently sold.
Hiring a professional appraiser or business valuation expert is essential to ensure an accurate and unbiased valuation. This step is important for both sides to understand the business’s worth and how the marital interest will be divided.
Dividing Business Assets During Divorce in New Jersey
Once the value of the business has been determined, it will need to be divided. There are three common methods of division seen in New Jersey, which include:
- Buyout: One spouse may agree to buy out the other spouse’s share of the business. This allows one party to retain full ownership and control of the company.
- Co-Ownership: In some cases, spouses may continue to co-own the business after the divorce, though this can be difficult to manage and may lead to ongoing disputes.
- Selling the Business: If neither spouse wants to retain ownership or if a buyout is not feasible, selling the business may be an option. The proceeds from the sale would be divided according to the terms of the divorce settlement.
Does a Business Have to Be Divided During Divorce?
No, a business does not have to be divided in a divorce, but it can be, depending on how it is classified and what decisions are made during the divorce process. If your business is yours and yours alone—and was not started during your marriage—it is most likely classified as separate property and not subject to equitable distribution.
However, if your business is treated as marital property due to the business starting or growing during your marriage, then it will be subject to equitable distribution, and the aforementioned methods of division will be used.
Now, there are some areas where business division becomes complicated. For example, if you owned the business prior to marriage but experienced significant growth and an increase in value after getting married, that increased value may be subject to division. The original ownership will remain intact.
How Does Divorce Impact Business Operations?
There is no denying that divorce can be disruptive to normal life and business, especially if both spouses are involved in business operations. Management and control may change should one spouse plan to buy out the other or if co-ownership leads to the negotiation of new roles.
A divorce can also affect employees and clients, particularly if they are uncertain about the future of the business. Maintaining clear communication during the process can help minimize disruption.
Prenuptial agreements can safeguard business interests during a divorce.
How Can You Protect Your Business in Divorce?
Proactive measures exist that can protect your business in the event of divorce. Prenuptial and postnuptial agreements can be useful, as these documents clarify how the business will be handled during divorce. These agreements may specify that the business remains separate property or establish how its value will be divided.
You can also select a corporation or LLC structure. Either structure may help separate business assets from personal assets, potentially making it easier to distinguish between marital and non-marital property.
Keep detailed records of your business’s growth and any contributions made by either spouse. This documentation can be important for determining the marital portion of the business’s value.
Contact a New Jersey Divorce Attorney Today
Dividing a business in divorce is a complex process that requires careful consideration of both financial and legal factors. Working with experienced attorneys and financial professionals is crucial to ensure that your business is protected during the divorce process. Attorneys can help craft agreements, navigate asset division, and resolve disputes that may arise.
At Ziegler Law Group, LLC, we understand the unique challenges faced by business owners in divorce. Our team works closely with clients to protect their business interests, secure fair asset distribution, and minimize disruption to operations. Contact us today to discuss how we can help you navigate divorce and protect your business’s future.
Call 973-533-1100 or fill out the online form today to schedule your consultation.
Protect Your Business During Divorce
Are you a business owner navigating the complexities of divorce in New Jersey? Our comprehensive guide, What Business Owners Need to Know About Divorce in New Jersey, provides actionable insights on protecting your business and financial future during this challenging time.
What’s Inside:
- Proven strategies to safeguard your business interests.
- An overview of business valuation methods and their implications.
- Legal approaches to ownership division, including buyouts, co-ownership, and asset sales.
- Tips for proactive measures, such as prenuptial agreements and proper business structuring.
Equip yourself with the knowledge to make informed decisions. Download the Free Guide Now and take the first step in securing your financial future.
