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What Happens to My Business in a Divorce?

If you or your spouse file for divorce, you are likely worried about your business. Specifically, will the divorce affect the ownership, and how can you protect your business during your divorce?

Is Your Business Marital or Separate Property?

New York is an equitable distribution state, which means that marital assets (and debts) will be divided fairly—not equally. Whether your business is subject to division in your divorce depends on if it considered marital or separate property.

Separate property includes the assets and property that each party purchased or obtained before the marriage, and marital property includes the assets and debts acquired during your marriage. Either party can exclude an inheritance, certain gifts, and compensation from personal injury cases from being considered marital property.

In dividing marital property, the court will evaluate criteria including but not limited to:

  • The length of the marriage
  • The contributions of each partner to the marriage
  • Each partner’s contribution as a homemaker
  • The value of each party’s separate property

Even if you started the business before your marriage, your business can be classified as marital property in certain instances, such as:

  • During the marriage, you or your spouse made financial or nonfinancial contributions to the business that helped with its maintenance or success.

Valuing & Dividing a Business in Divorce

Regardless of whether the business if separate or martial property, a financial expert or another skilled professional (i.e. a CPA, forensic accountant, etc.) can perform a business valuation to determine the business’ monetary value and the business owner’s salary. During a valuation, you will likely need the following information:

  • A business description, that outlines the products, services, business trends, etc.
  • Tax returns, reflecting the business earnings
  • Financial statements, including but not limited to cash flow statements, balance sheets, income statements, etc.
  • Bank and/or investment account statements
  • Business entity documents, identifying all owners and their respective shares/business interests

If your business is martial property and subject to division, after the business valuation, you may have to buy out your spouse, sell the business (to split the liquidated assets), or welcome your spouse as a partial owner. You should consult with an experienced property division lawyer to better understand your legal options.

Protecting Your Business from Divorce

Business owners often consider entering into a pre-or postnuptial agreement to protect their business (especially if they have partners or investors). Entering into either of these agreements allows couples to determine how property, assets, and debts will be divided in the event of a divorce.

However, if you and your partner did not draft such an agreement, you can take the following steps to protect your business during your divorce.

  • File for an uncontested divorce. To file this way, you will need to agree on issues including but limited to child custody and support, property division, alimony, and more. Even though coming to an agreement may be challenging, you and your partner can have autonomy over the terms of your divorce agreement by filing uncontested.
  • Compromise and offer other assets. During your divorce, you can negotiate with your spouse and offer them assets similar in value to the business.
  • Do not commingle your business (or separate property). Even if your business is separate property, it can become a marital asset if they contribute to its maintenance or upkeep. Try to keep your business funds and personal funds separate, and avoid including your partner in business operations.
  • Work with our experienced divorce lawyer. Our attorney is equipped to handle high-net worth divorces and property division issues. If you are worried about what will become of your business in a divorce, you should consult with our firm.

At Rubenfeld Law Firm, our attorney has over 30 years of legal experience concerning divorce and family law. Known for his strong negotiation and litigation skills, Attorney Michael Rubernfeld can work with you to develop a personalized legal strategy and protect your interests. Schedule your case consultation today online or at (631) 777-7200.