Your business means a lot to you, and if you started it with family, there is a good chance you want to keep it in the family for good. So what happens when you are getting divorced from your spouse and possible business partner? Who gets the business? Whether your business was established before or during the marriage, or whether your spouse is actively involved in the company, it’s important to understand how New Jersey laws will affect the future of the business. Let’s explore the considerations and steps involved when a family-owned business is part of a divorce.
Key Takeaways
- A family-owned business may be considered a marital asset if it was started during the marriage or grew significantly during the relationship, subjecting it to division in a divorce.
- The value of the business is determined using income, market, or asset-based approaches, which helps ensure fair asset distribution.
- Businesses can be divided by one spouse buying out the other, co-owning, or selling the business and splitting the proceeds.
- Spousal contributions, earning potential, and the impact on child support or alimony can influence how a business is divided.
- Prenuptial agreements, business succession plans, and buy-sell agreements can help protect the business from the effects of divorce.
Is Your Business a Marital Asset?
The first thing that needs to be examined is whether the business is considered a marital asset or a separate property. From there, you will know if the business will be part of the equitable distribution of marital assets.
The family-owned business will be considered a marital property if the business was started during the marriage or significantly grew in value while you were married, it is typically treated as marital property, meaning it is subject to equitable distribution. In other words, your family-owned business will be divided between you and your spouse, following the state legislation of New Jersey.
Your business will be considered a separate property if the business was started before the marriage and did not experience substantial growth during the marriage. This means that your business will not be subject to division. However, if the business increased in value due to contributions from your spouse or other marital factors, the appreciation in value could be subject to division.
Valuation of The Family-Owned Business
If the family-owned business is considered a marital asset, the next step is to determine its value. Business valuation is a long process. Work with an experienced professional to ensure that the valuation is 100% correct. Here are three common approaches to business valuation:
- Income Approach: This method evaluates the business based on its earning potential, taking into account future revenues, profits, and cash flow.
- Market Approach: The business is valued based on comparisons to similar businesses in the marketplace.
- Asset Approach: This approach calculates the business’s net asset value by determining the worth of its assets minus any liabilities.
The valuation process ensures that both spouses have a clear understanding of what the business is worth, which is crucial for equitable distribution during divorce proceedings.
Dividing the Business
Once the business has been properly valued, there are several ways that it can be divided or distributed between spouses. The method used will depend on various factors, including the financial interests of both parties, their involvement in the business, and what is most practical for the future of the company.
One Spouse Buys Out the Other
In many cases, one spouse may want to retain ownership of the business and continue running it. To do this, the spouse who keeps the business will typically buy out the other’s share by compensating them with assets of equal value, such as property, cash, or investments.
Co-Ownership
If both spouses are willing and able to continue working together, they may opt to co-own the business post-divorce. This option can be complicated and requires strong communication and collaboration, but it allows both spouses to maintain their interest in the company.
Selling the Business
If neither spouse wants to keep the business, selling it may be the best option. The proceeds from the sale can then be divided between the spouses in accordance with the terms of the divorce.
Factors That Influence Business Division
There are several factors that influence how a family-owned business is divided in New Jersey. As mentioned earlier, the contributions of each spouse do impact the division. The court will consider how much each spouse actively contributed to the growth of the business. This includes financial investments, management roles, or indirect support, such as caring for the home and family while the other spouse worked on the business.
The court will also take into account earning potential. If one spouse has the potential to continue earning a substantial income through the family-owned business, the assets will be divided according to that.
Lastly, if you have children, the business’s value may impact child support and alimony determinations, which can further affect how the business is divided.
How to Protect Your Business During a Divorce
Now, there are ways to mitigate the impacts of divorce on your assets. The first method will require some foresight and planning. Prenuptial and postnuptial agreements can both safeguard your business from division. These agreements can specify how the business will be handled in the event of divorce, protecting both parties from lengthy litigation and uncertainty.
Next, you can write a business succession plan. Clear business succession plans can ensure that a divorce does not derail the company’s future operations. This may include designating a manager or co-owner who can step in if needed.
The third option is known as a buy-sell agreement. A buy-sell agreement can help establish terms for buying out a spouse’s interest in the business if necessary, providing clarity and minimizing disputes.
Another option, depending on the status of your relationship after the divorce, may be to continue co-owning the business with your spouse.
Contact a New Jersey Divorce Lawyer Today For Advice
A family-owned business is often the cornerstone of a family’s financial security, making it all the more important to approach its division thoughtfully during a divorce. Understanding whether the business is a marital asset, working with professionals to properly value it, and considering various options for dividing the business are all key steps in navigating this complex process.
At Ziegler Law Group, LLC, we are experienced in handling divorces involving family-owned businesses. Our team can help you protect your interests, guide you through the legal process, and find the best solution for your unique situation. If you’re facing a divorce involving a family-owned business, contact us today to schedule a consultation by calling 973-533-1100 or filling out the contact form.
