Dividing property during a divorce becomes complex, especially when it involves a family business. In New York, the outcome for the business depends on several factors, including how the business began, whether it qualifies as marital or separate property, and the couple’s specific circumstances.
Courts work to ensure a fair distribution, which doesn’t always mean splitting everything evenly.
Is the business marital or separate property?
A key question is whether the family business qualifies as marital property or separate property. If one spouse started or inherited the business before the marriage, it may qualify as separate property, meaning it does not undergo division. However, if the business grew during the marriage or both spouses contributed to its success, courts may treat it as marital property. Contributions include direct involvement, such as running the business, or indirect efforts, like providing financial support.
Valuing the business for division
After determining the business as marital property, the next step is to assess its value. A professional appraiser typically examines the business’s assets, liabilities, and income. The valuation process also considers intangible factors like goodwill and future earning potential. An accurate valuation ensures fairness when dividing property or compensating one spouse for their share.
Options for dividing the business
New York courts handle family businesses in divorce using several methods. One option allows one spouse to buy out the other’s share, keeping the business intact under one person’s ownership.
Another involves selling the business and dividing the proceeds, though this becomes difficult if both spouses wish to retain the business or if the business’s value relies heavily on one spouse’s involvement. In some cases, former spouses agree to remain co-owners, but this requires careful planning and a cooperative relationship.
Protecting your business during divorce
Business owners can take steps to safeguard their interests before and during marriage. Prenuptial or postnuptial agreements outline how to handle the business in case of divorce. During divorce proceedings, both spouses must provide full financial transparency to achieve an equitable outcome. Professionals experienced in business valuation and property division can help protect your interests.
Resolving issues around a family business during a divorce presents challenges, but understanding your options and how New York courts approach the issue lays the groundwork for a fair resolution.