The process of dividing a business into a divorce depends on the particular circumstances of your case. Under New York divorce laws, the question of whether you are entitled to half your spouse’s business generally depends on whether a court finds the enterprise to be marital property or separate property.
What Is Equitable Distribution?
In New York when spouses decide to file for divorce, the court divides marital assets and debts between the parties according to principles of fairness. Courts call this process “equitable distribution.”
When dividing a business in a divorce, you are entitled to a share of your spouse’s business if it is marital property. However, a court will not divide the separate property. Note that even if the business is separate property, a court may still award you a fair share of its appreciated value to the extent you contributed to the business yourself or otherwise provided indirect support during the marriage (i.e., cooking, cleaning, and taking care of the kids).
What If the Business Is Separate Property?
Separate property includes property acquired before the marriage, family inheritances, third-party gifts, certain personal injury judgments, and passive appreciation of a separate business asset. Equitable distribution is not appropriate if, for example, your husband owned a business worth $10 million on the day of marriage and, upon filing for divorce, it was still worth $10 million. Equitable distribution would also be inapplicable where your husband’s business if owned before the marriage, is appreciated due to market conditions without any active effort by you or your husband.
Related: How are Assets Divided in a Divorce?
Dividing a Business in a Divorce If the Business is Marital Property
In general, marital property includes all assets acquired during the marriage, income, active appreciation of a business asset, improvements to real property, and direct and indirect contributions to the other spouse’s education or business. For example, imagine your husband’s business was worth $10 million on the date of marriage. During the marriage, you took care of household tasks and child-rearing duties. This lets your husband focus on building the business. Upon filing for divorce, the value of the business is $15 million. Because your efforts contributed to the business’s growth, the value of the business’s appreciation ($5 million) would be subject to equitable distribution. Note that equitable distribution does not necessarily mean 50/50. In New York, courts dividing a business’ appreciation will consider various factors. These factors include, but are not limited to, whether the non-titled spouse:
- Directly contributed to the business,
- Provided emotional and moral support,
- Served as the primary caregiver to any children,
- Performed the bulk of household duties, and
- Made personal sacrifices with respect to their own career goals.
An attorney can help you establish these factors and explain to the court why you should receive a share of the business.
Do I Have to Run the Business with My Ex-Husband?
Divorce and business ownership are not always compatible. No one wants to operate a business in joint ownership with their ex-spouse. In cases like this, you have some options. You may want to swap your share for marital assets. For example, you take the house and car, and he takes the entire business. On the other hand, if there are few marital assets or if the business is the only asset of significant value, it may be optimal to liquidate the business to effect a divorce business buyout. In both cases, it will be necessary to obtain a competent appraiser to assist in the divorce business valuation.
Rely on Experience to Help You Divide a Business in a Divorce
Divorce is hard enough. When a spouse-owned business becomes marital property, equitable distribution becomes a much more complex and caustic endeavor. Finding an effective attorney experienced in divorce and business valuation is crucial Contact Stepanian Law Firm today for a consultation. We are responsive to you and will provide personal attention to your case.