Divorce Strategies for Business Owners

Divorce Strategies for Business Owners

If you are a business owner going through a divorce, your divorce will have different issues than the divorce of a couple where both spouses are W2 employees. In addition to relying on your business to provide you with income and a certain lifestyle, you may have a strong emotional attachment to it. Whatever the reason, it’s likely that you want to do everything you can to protect your business during your divorce. Working with a knowledgeable divorce attorney can help you navigate your divorce successfully and secure your investment in this asset. 

To help provide clarity for New York business owners facing divorce, here are a few frequently asked questions and responses.

Is My Business a Marital Asset?

A business is considered a marital asset if it was started during the marriage.  Additionally, if a pre-marital business has increased in value during the marriage, the increase in value could be considered a marital asset.

Even if your spouse isn’t a partner or joint owner of the business, they could have an equitable claim to a percentage of the business’ value based on their direct or indirect contributions that helped the business succeed. For example, even if your spouse stayed at home to care for your children so you could work and grow the business, those indirect contributions are often seen as sufficient to entitle them to an equitable share of the business value.

How Do You Determine the Value of the Business?

During a divorce for New York business owners, if the business is considered marital property, a business appraiser is often retained to determine its value. Factors that influence the value of a business include the:

  • Type of business
  • Location
  • Growth prospects
  • Earnings history
  • Market conditions
  • Goodwill

The attorneys at Vacca Family Law Group can help you find a qualified business appraiser who will carefully look at all these factors and more with the goal of helping  you and your spouse come to an agreement on the business value.  Once this major issue is resolved, it could help you and your spouse settle on the remaining issues with more ease.

What If My Spouse and I Own the Business Together? 

Sometimes, divorcing couples own a business together and need to decide if they will continue as co-owners or if one spouse will buy the other out. If you want to continue owning the business together after the divorce, it’s important to agree on clear written terms for how you and your spouse will operate the business and share in its profits as co-owners, as opposed to a married couple. 

Your Separation Agreement or a business Operating Agreement should answer questions such as:

  • How will you operate the business on a day-to-day business?
  • What role will you each play?  
  • How will profits be shared?
  • How will business decisions be made?
  • What if co-ownership is no longer working for one of you? How will a buyout be handled? 

Answering these questions in a legally binding agreement will allow you to move forward with clarity and reduce the chance of future conflict. 

How Will the Marital Value of the Business Be Distributed in the Divorce?

In New York, when a business that is owned by just one spouse is being distributed as part of a marital estate, it’s not uncommon for the business owner to pay the non-titled owner anywhere from 10% to 30% of the value.

If your spouse has a claim to a share of the value of your business, there are two common ways to settle the division. These are:

  • Pay the sum outright in cash.
  • Trade another asset, such as equity in real estate or retirement accounts, for the share of the business. 
  • Pay the agreed-upon share as a distribution over time, such as a set amount per month over a certain amount of years. Be aware, however, that you may incur interest if you choose this option.

Consult an Attorney Who Can Assess the Divorce From All Angles

Divorce for New York business owners can be more complicated than other divorces. It’s important to choose a divorce attorney who understands the intricacies of your situation and knows when to bring in other professionals to help you think about and weigh your options. These professionals could include a business attorney, a financial advisor, and/or a business exit consultant. 

At Vacca Family Law Group, we understand the complexities of divorce for business owners. We can provide tailored legal guidance and recommend assistance from other professionals to help you achieve an equitable outcome that meets your short and long-term goals. Call 646-798-4740 to schedule an appointment with a business owner divorce attorney at Vacca Family Law Group.