In this month’s issue of Westchester Magazine–Ask a Top Lawyer, James Nolletti and his team at Nolletti Law Group PLLC provide answers to questions for business owners to consider when they file for divorce.
When people get married, they hope for a fairy tale ending. The reality? Fifty-two percent of first marriages end in divorce. While the dissolution of any marriage can be difficult, they become even more challenging when one or both spouses own a business. Depending on the circumstances, your spouse may be entitled to up to 50 percent of your business in a divorce. If you’re hoping to avoid staying business partners with your ex-spouse, here’s what you should know:
How Does a Pre-Nup Agreement Impact Divorce Proceedings?
If you have a pre- or postnuptial agreement that addresses the business, then the terms in that agreement may have a considerable impact on how the business is handled in a divorce. For couples who don’t have an agreement, or if the agreement is unenforceable, then applicable provisions of New York law take the forefront in determining how various issues will be resolved.
What Determines Asset Ownership and Division?
When deciding how to divide assets and debt during a divorce, keep the following factors in mind:
- Whether the business is separate property under New York law
- Whether there is a marital property component as a result of post-marriage appreciation
- Valuation of the business or a partner’s particular interest in a business
- Reasonable compensation for a working owner
- Whether personal expenses are paid through the business
- True income for support purposes
- Selling business interests (does one spouse buy out the other? Do both sell and split the proceeds?)
- Automatic orders to preserve the status quo
- Cash flow and liquidity issues
- Procedures for continuing business operations
What Challenges Do Parents Face?
On paper, they may appear to have access to more assets than they actually have available, because so many assets are devoted to the business. It can be challenging to obtain fair arrangements for alimony or maintenance and child support that leave enough income to maintain a decent standard of living.
Should I Hire a Professional Business Valuator?
If a business is owned by both spouses with no outside owners, and both partners agree to sell the business and divide the proceeds as marital property, it may not be necessary to hire a professional business valuator. In most other circumstances, hiring an independent forensic accountant who specializes in business valuation is a wise and often necessary investment.
While it is certainly possible to obtain a valuation from the company’s regular accountant, it is usually better to bring in a separate, independent professional who has no ties to the business and cannot be accused of bias in the process when there are contested facts and legal issues involved in the valuation process. In a case where there are no such contested facts and legal issues, you can ask the court to appoint a neutral forensic accountant, agreed on by both parties, and then neither party has grounds to assert that a valuation is tainted by partiality.
Do I Really Need a Divorce Lawyer?
The process of disentangling a married couple’s lives can be complicated in a divorce case, but when one or both spouses owns a business, the financial complexities can quickly spiral. If you or your spouse own(s) a business and are facing the possibility of divorce, it is essential to start working with an attorney who understands the issues you will need to address and how to guide you through the procedure to preserve your business assets going forward.