One of the greatest challenges in divorce comes when it’s time to divide the marital assets and liabilities. Divorce with a business involved amplifies that challenge. When divorcing couples own their own business, equitable distribution can become very complex. In New York, if the business is marital property, the law entitles each to a fair share. Divorce and business assets may trigger litigation when the disposition of business property is out of sync with one party’s expectations.
Am I Entitled to a Share of the Business?
One common misconception regarding New York’s equitable division laws is that a spouse must actively participate in the business to have a claim for business assets in a divorce. This is not necessarily the case. Even if a spouse has very little or no involvement in the operations of the business, spouses are still entitled to an equitable share when the business or its appreciation is a marital asset. A business may be a marital asset if it was formed or acquired during the marriage. Appreciation may be a marital asset if a spouse directly or indirectly contributed to its appreciation.
What Are My Options in Divorce When There’s a Business Involved?
Most parties don’t want anything to do with each other after divorce. Divorce with a business involved is no exception. Thankfully New York courts provide options when deciding how to divide business assets.
The first option is to offset the value with other marital assets. This is an easy solution if the parties have sufficient assets. For example, you may decide to trade the business for the house and car.
If you don’t have adequate assets to trade, there could be other options for buying out the other party’s share. For example, the party keeping the business could take out a loan in the business’s name or pay the buyout price from company profits over time.
If you can reach an agreement regarding a buyout, you could sell the business on the open market.
How Do You Dissolve a Business in Divorce?
Divorce with a business involved may require the dissolution of the entity. The requirements to dissolve a business in New York are expansive. Fulfilling said requirements depend on the nature and organizational structure of the business. Depending on the type of business entity you have, you will need to complete the following steps to begin the dissolution process in New York.
These require no formalities. Assets from a sole proprietorship are common marital property assets. Note that even if one spouse has only contributed to the business indirectly, courts may still award them a share. Examples of indirect contributions include homemaking and child-rearing.
If your business is a partnership, a partnership agreement typically governs dissolution procedures. In the absence of a partnership agreement, the New York Uniform Partnership Act provides for dissolution by the express will of a single partner at any time.
Limited Liability Company
Limited liability companies and divorce requirements are slightly more involved. If you have a valid prenuptial agreement, it may contain an LLC divorce clause spelling out the rights and responsibilities of the parties. In any event, the LLC’s operating agreement typically outlines the process for dissolving your company. If you don’t have an operating agreement, New York’s LLC Act allows for voluntary dissolution by majority vote or written consent.
Closely Held Corporation
Closely held corporations, such as an S corporation, and divorce typically require a shareholder vote to dissolve. Shareholders must vote to dissolve in accordance with the corporation’s articles of incorporation. The corporation then must submit a Certificate of Dissolution and written consent from the New York Tax Department attesting that the business owes no back taxes. You must then file the forms with the New York Secretary of State.
Rely on an Experienced Business Divorce Attorney
Divorce is stressful. Divorce with a business involved can be overwhelming. This is the case whether it be an LLC and divorce, a partnership, a closely held corporation, or a simple sole proprietorship. Let the experienced attorneys at the Stepanian Law Firm handle the valuation, dissolution, and equitable distribution of your marital business assets. Contact Stepanian Law Firm for an attorney who is responsive and provides personal attention to your case.