Divorce Between Business Owners in New Jersey
Deciding to divorce from your spouse is often painful and emotionally overwhelming, and the experience can be made even more stressful if the divorce involves a complex financial situation. Divorces between two spouses who own a business can be difficult to navigate and often requires the assistance of qualified legal counsel. If you have questions or concerns regarding your divorce and dividing business interests, you should contact an attorney who can guide you through the process of dividing your property and ensure that your rights are protected.
Initial Impact of a Divorce Between Business Owners
It can be extremely difficult to divide a valuable asset such as a business between two parties, but there are measures that a couple can take early in their marriage to ease the process to an extent. However, if no such protections were established, a divorce can have a detrimental impact on a couple’s business as they undergo the legal process of dissolving their marriage.
First, the emotional toll and extreme stress that a divorce can have on a family will often affect the state of their business. Divorce proceedings can consume the involved parties’ time and energy, and a business may suffer as a result of the owners’ decreased concentration. Additionally, depending on the situation, a divorce agreement may require one spouse to pay financial support to the other, and they may have to take distributions from the business as income to do so instead of leaving it to grow.
Effects of a Settlement
A major component of a New Jersey divorce between business-owning spouses is determining how much the business is worth, as well as how much one party is going to pay the other to keep it or how the business will continue to operate under joint ownership after the divorce. The most significant impact of a divorce on a business is often derived from the settlement agreement between the two parties.
A business is not often liquidated or sold in these cases, but a value is assigned to it instead that makes it distributable as an asset. To do so, factors such as the business’ gross revenue, tax implications, and cash flow will be taken into account. So, will the “goodwill” of the business, if any, which is basically defined as an intangible asset category such as the name, reputation, customer patronage, location, products, and similar factors. The spouse who is not the official business owner will then be entitled to a percentage of that value unless they agree to operate it together post-divorce.
This means that the main business owner has to come up with a certain sum of money to buy out their ex-spouse’s interest, which can affect their income and their ability to put money back into their business or reinvest. In some cases, the owner may need to take out loans to do this or explore options to downsize their business.
Steps to Prepare for a Divorce
A business owner in New Jersey can prepare for a potential divorce by keeping very accurate records, being organized, and having their tax returns up to date. During a divorce, their business will undergo a forensic evaluation that could expose any examples of wrongdoing. Keeping their business matters as legitimate, straightforward and organized as possible from the start could prove to be incredibly beneficial in the long run. Any business owner whose spouse is their partner should be fully involved in the finances, banking, and daily operations of their business, instead of relying on someone else. Talk to the business’s accountant for help if you need it.
Dividing Shareholder Partnerships
If a litigant in a New Jersey divorce does not own 100% of their business, it is essential that they prove their share with the help of an attorney at the beginning of the legal proceedings. While the entirety of the business is valued, the amount that the non-business owner spouse would be entitled to is only a percentage of the spouse’s share of that business. In order to substantiate and show what that share is, they must produce a shareholder agreement with a partnership LLC agreement or a buy-sell agreement.
Additionally, it is important to provide the documents that detail a buy-sell agreement. If a party is still buying into a business while the divorce is going on, they may not have acquired the full shares, which can certainly affect the valuation. This means that it is crucial to provide whatever agreements exist, whether it regards acquiring or selling the business, partnership agreements, or shareholder agreements. All of these different agreements can have an impact on the litigant’s share and the percentage of what a non-business owner is entitled to.
A New Jersey Attorney Can Guide a Business Owner Through Their Divorce
If a business owner intends to get a divorce, a financial planner cannot represent them, and they would require the assistance of a New Jersey divorce attorney to litigate their case. Qualified legal counsel with experience leading high-net worth cases can guide you regarding your next steps in the divorce process and ensure that your assets are protected. Contact us today to schedule a confidential consultation and learn more about your options.