When divorcing someone you share a family-owned business with, it’s common to have lots of questions. Do you have to divide the family business? Will you—or can you—continue running the business together? Can one of you buy the other person out? Is a shared business subject to equitable distribution?
There are numerous considerations for business owners going through a divorce—and many options for resolving concerns.
When it comes to determining the best next steps for your unique situation, though, it’s important to work with a family law attorney who is experienced in helping business owners navigate equitable distribution concerns, protect their assets, and advocate for their best interests.
Are business assets marital or separate property?
Because New Jersey is an equitable distribution state, an important aspect of any divorce is determining which assets are considered “marital” or “separate” property. A family-owned business is no exception.
There are general guidelines about what can be considered “marital” or “separate” property, although it’s important to note that nuances of your business and personal circumstances may affect your individual situation.
Marital property
A business—along with any holdings, properties, or investments—is likely to be considered marital property if it was formed or acquired during the marriage. This makes it subject to equitable distribution, even if only one spouse carried the bulk of the business-related responsibilities.
Similarly, if one spouse held the asset prior to marriage but the other spouse quit their job to help with the business, the enterprise may be considered marital property. This may also be the case if a spouse contributed in a way that actively increased the value or profit of the business.
Separate property
Business assets may be considered separate property if they were first held or entered into before the marriage or after filing for divorce, or, depending on certain factors, if they were part of an inheritance or non-spousal gift.
Note that post- or prenuptial agreements can also protect a business as separate property, regardless of when it was formed. If you’re unsure whether your business assets would be considered marital or separate property, a divorce attorney experienced in working with business owners can help.
What happens if a couple can’t come to an agreement?
When both parties in a divorcing couple agree to the terms of a settlement and adhere to New Jersey regulations, there are a variety of options to choose from. But what if the parties can’t come to a mutual decision?
In these cases, you may want to pursue a form of alternative dispute resolution, such as mediation. This involves working with a trained, neutral third-party mediator to facilitate a negotiation between both parties to help them reach an agreement. Not only is this method often less contentious than litigation, but it also tends to be less expensive.
At Jacobs Berger, our family law attorneys also serve as neutral mediators to help you through any and all aspects of the divorce process so you can de-stress your divorce and focus on your future goals.
Determining the value of your business
If your business is considered a marital asset, you will then need to establish how much it is worth, and how much of the value will be divided between you and your former spouse. One way to do this is to go through a valuation process.
The valuation process involves using an expert, such as a CPA, industry expert, forensic accountant, or financial analyst, to determine the value of the business and the income of the person running it.
To put a value on your business, an expert will look at factors such as:
- Tangible property, such as equipment owned, buildings owned, and money currently held in a bank account
- Intangible property, such as the way the business is viewed by customers, leads, and others
- Liabilities, such as rent, credit lines, or money owed
Options for handling a family-owned business during divorce
There’s no one right way for you and your future ex-spouse to move forward with a shared business during or after a divorce, but an experienced attorney can help you determine which option is most suitable for your circumstances and your long-term financial and professional goals.
There are three main ways to handle a family-owned business during divorce: buying out your spouse, co-owning the business, or selling it.
Buying out the remaining shares of the business
If one spouse is significantly more involved in and dedicated to the business than the other, they may choose to buy out the other person if they are financially able to. This will allow them to run the business independently, with no interference from their ex-spouse.
Co-owning the business
If the divorce was amicable and both parties feel that they can continue to work in harmony, they may choose to continue running the business together.
If running the business together is not a sustainable option, other options include, but are not limited to:
- Dividing the shares of the business, where one partner continues to run the business and the other accepts payments from business proceeds
- Dividing the business into separate organizations so that both parties can retain ownership while focusing on new, different departments
A family law attorney can work with you to develop a creative solution that keeps your best interests in mind.
Selling the business
Some divorcing couples may find that moving on from the business altogether is the best option. After undergoing the business valuation process, both parties may choose to sell their assets and split the profits equitably.
Consult with an experienced New Jersey divorce attorney
When you work with an attorney who understands the impacts of divorce on a family-owned business, you are partnering with someone who can help you find creative solutions to move forward in a way that’s right for you—both personally and professionally.
Make an appointment to coordinate your strategy session with our team at Jacobs Berger.
