If you’re a business owner who is facing a divorce, you’re most likely extremely concerned about what will happen to all you’ve built. Here at Dow Divorce Law, we are dedicated to protecting fathers and husbands who own businesses. Contact a dedicated Staten Island business owner divorce lawyer from our firm to learn more about how we can effectively represent you today.
Is a Business Considered Marital Property in New York?
One of the first questions many business owners ask is whether their spouse is automatically entitled to part of their company simply because they are getting divorced. Unfortunately, the answer is not always straightforward. In New York, courts divide property under equitable distribution laws, which means marital assets are divided based on what the courts determine is fair, rather than automatically dividing everything equally between spouses.
Generally speaking, whether a business is considered marital property will depend on several factors, including when the business was established, whether the business increased in value during the marriage, and whether marital efforts contributed to that increase in value. For example, if you started your business before getting married, there is a strong chance that at least part of the company may qualify as separate property. However, if your spouse argues that the business grew substantially during the marriage due to marital contributions, then the increased value of the company may become part of the equitable distribution process.
New York courts will often examine several issues when determining whether a business is marital property, including the following:
- Whether the business was started before or during the marriage
- Whether marital funds were invested into the business
- Whether your spouse contributed to the growth of the company
- Whether the business appreciated during the marriage
- Whether business and personal finances were commingled
- Whether there are any prenuptial or postnuptial agreements in place
That being said, simply because your spouse claims entitlement to part of your business does not mean the courts will automatically agree. In many cases, business owners who maintained proper financial separation and accurate records are in a far stronger position to protect their interests during the divorce process. This is why documentation is often extremely important in business owner divorces.
Some of the most important documents in these cases are as follows:
- Corporate tax returns
- Partnership agreements
- Operating agreements
- Shareholder agreements
- Payroll records
- Bank statements
- Profit and loss statements
- Buy-sell agreements
- Prenuptial or postnuptial agreements
How Businesses Are Valued in a New York Divorce
If a business becomes part of the equitable distribution process, the next major issue will typically involve determining how much the business is actually worth. Naturally, this is often one of the most heavily disputed aspects of a business owner divorce, especially when one spouse believes the company is worth substantially more than it actually is.
Business valuation is rarely simple. In fact, depending on the type of business involved, these cases can become extraordinarily detailed and financially complex. For example, valuing a medical practice is very different from valuing a construction company, restaurant, retail business, or closely held corporation. Because of this, courts and attorneys frequently rely on accountants, valuation professionals, and financial experts throughout the process.
Generally speaking, some of the factors used to value a business can include:
- Business revenue
- Existing debts and liabilities
- Future earning capacity
- Business assets
- Market conditions
- Historical profits
- Goodwill
- Ownership structure
There are also several valuation methods that may be used during a divorce case. These can include an income-based approach, an asset-based approach, or a market comparison approach, among others. The method used can significantly impact the final valuation figure, which is one reason these disputes often become contentious.
Many business owners are especially concerned about inflated business valuations. Unfortunately, there are situations where a spouse attempts to argue that projected future growth or speculative future profits should dramatically increase the overall value of the company. In many cases, this can result in unrealistic financial demands being made during settlement negotiations or litigation.
You should also understand that business valuation does not necessarily mean your company will have to be sold. In many cases, business owners retain ownership of the company while offsetting the value of the business with other marital assets or financial arrangements negotiated during the divorce process.
Protecting Your Business During Divorce
If you own a business and are considering divorce, or if your spouse has already filed, one of the most important things you can do is begin protecting yourself as early as possible. Unfortunately, many business owners wait too long before addressing these issues, and by the time they begin gathering documentation and reviewing financial records, significant damage may already have been done.
There are several steps business owners can take to help protect their companies during divorce proceedings, including the following:
- Keeping business and personal finances separate
- Maintaining organized financial records
- Avoiding unnecessary commingling of funds
- Preserving corporate formalities
- Reviewing shareholder agreements
- Reviewing partnership agreements
- Avoiding major financial decisions without legal guidance
- Protecting confidential business information
Litigation vs. Settlement in Business Owner Divorce
Many business owner divorces begin as contested divorces. Fortunately, however, not every case ultimately ends inside of a courtroom. In fact, depending on the circumstances, many business owner divorce cases are resolved through negotiated settlements before trial ever becomes necessary.
There are several potential advantages to reaching a settlement agreement, including the following:
- Greater privacy
- Lower litigation costs
- Faster resolution
- Reduced disruption to your business
- Greater control over the outcome of your case
That being said, settlement is not always possible. If your spouse is making unreasonable demands, attempting to inflate the value of your business, or otherwise refusing to negotiate fairly, litigation may ultimately become necessary to protect your financial interests.
Litigation can be an especially serious issue for business owners because prolonged divorce disputes may impact day-to-day operations, employee morale, future growth opportunities, and even business relationships. Furthermore, business litigation often requires extensive discovery, financial analysis, witness testimony, and expert evaluations. During litigation, courts may examine the following:
- Business records
- Tax returns
- Compensation history
- Ownership interests
- Future earning capacity
- Business debts
- Valuation reports
- Marital contributions
Contact a Business Divorce Lawyer in Staten Island, New York Today
Here at Dow Divorce Law, we understand just how hard you’ve worked to build your business from the ground-up, and we will do everything in our power to protect it. If you’re a business owner facing a divorce, contact a lawyer from our firm today. We are here to fight for you, every step of the way.
