What Happens to Your Business When You Get Divorced?
In New York, marital property is subject to equitable distribution when a couple is divorced. If parties can’t agree how to divide their property, a judge first considers a number of factors to decide which property is marital property and which property is separate property. Marital property is divided between the spouses according to the judge’s final order.
Marital property generally includes any property obtained during the marriage, such as:
- The marital home
- Vacation property
- Other real estate
- Retirement accounts
- Business interests
- Advanced degrees and licenses
As noted, business interests are considered marital property to the extent the business was developed during the marriage. Even if one spouse started the business before the marriage, the Court may find that the other spouse has a marital interest in the business.
If necessary, the parties must present evidence to the court regarding the current value of the business, the value of the business prior to the marriage, if any, and a preferred method of dividing the business or comparable assets.
A business valuation expert is especially important if your business represents a large part of your marital assets. A qualified expert collaborates with your divorce lawyer to selecting a valuation strategy based on the type of business and your goals. Some of the most commonly used methods include:
- Asset valuation. Considers appraisals of the business assets and equipment, improvements, inventory and owner benefit. This method is most suited to retail and manufacturing operations.
- Market valuation. Compares sales of similar businesses, but may not account for variations in your unique business. Internet businesses are often appraised with this method.
- Capitalization of income. Considers cash flow and return on investment (ROI), taking into account intangibles such as workforce and management, turn rates, industry trends, sales projections, and the market position and maturity of the business. This method is more suited to marketing a business for sale to a third party.
- Owners benefit valuation. This method multiplies annual owner income or equity growth by 2.2727 to estimate market value. It is a simple and perhaps arguably unreliable way to estimate business value.
A court may decide to leave a business intact and award it to one spouse, while the other spouse receives other marital property with a comparable value.
Attorney Lauren B. Abramson has 25 years of experience helping spouses protect assets and pursue a fair distribution of marital property throughout Westchester and Putnam counties, and the surrounding area.