How Is a Family Business Divided in a Divorce?

A range of issues need to be resolved during the divorce process, including complex custody matters, spousal support, and the division of marital property. This can be a complicated process under the best of circumstances. However, unique challenges are associated with dividing marital assets when you and your spouse own a business. If you and your spouse are going through a divorce and have questions or concerns about how the divorce will impact your family business, contact an experienced lawyer.

Is a Family Business Separate or Community Property?

The first step in determining how a family business will be divided in a divorce is to understand how the business is classified. For example, marital property is an asset or debt that is accumulated over the course of a marriage. This generally includes the marital home, bank accounts, pensions, and retirement benefits. If you and your spouse started the business together after you got married, the business will also be considered marital property.

New Jersey is an equitable distribution state, which means that marital property is divided in a manner that the courts deem fair, as opposed to an automatic 50/50 split. The court will consider a range of factors when determining how to divide the family business, including the role that both you and your spouse played in acquiring, building, and running the business, as well as the contributions that each spouse has made to the day-to-day responsibilities of managing the home and family.

However, if the business is considered separate property, it is not subject to equitable property division. A business may be considered separate property if you or your spouse established or acquired the company before getting married. A judge may also rule that the business is separate property if a prenuptial agreement clearly states that the company will continue to belong to one spouse. Depending on a range of factors, including whether both spouses contribute to the business over the course of the marriage and how the spouse who owns the business was paid, the entire business may not be considered separate property, in which case the other spouse may be entitled to a percentage of those assets.

What Are the Options for Dividing a Business in a Divorce?

If the business is considered marital property, there are generally three ways that the business may be divided, including:

• One spouse buys out the other spouse. In most cases, the spouse who is more involved in the company’s day-to-day management will buy out the other spouse, assuming this is financially feasible. This allows the spouse who will continue running the business to do so without interference from the other spouse.
• Continue to co-own the business. This option typically only works when the divorce is amicable, and both parties can continue to work together despite their marriage not working out.
• Sell the business. Before making this decision, a certified public accountant or other financial professional will determine the value of the business. They will look at tangible property, which includes buildings, equipment, and cash in the bank; intangible property, which is how customers and potential customers view the business; and liabilities, which include rent, lines of credit, and other money owed. Once the value of the business has been determined, and both spouses understand the actual value of the business, they may decide to sell and split the proceeds.

Our Paramus Divorce Lawyers at Torchin Martel Orr LLC Help Clients With Complex Divorce Issues

If you are going through a divorce and own a business with your spouse, contacting our Paramus divorce lawyers at Torchin Martel Orr LLC is in your best interests. Call us today at 201-971-4866 or contact us online to schedule a consultation. Located in Paramus, New Jersey, we serve clients in Bergen, Passaic, Morris, Essex, and Hudson Counties, and northern New Jersey.