New York divorce property division: handling business interests

It is important in a divorce to properly determine if a business is sole or marital property, and to accurately assign value to business interests.

Divorce can be difficult for any couple; figuring out how to arrive at the best child custody and visitation/parenting time arrangement, dividing a household and learning to live apart from someone you once loved is hard. When you – or your spouse – own a business, divorce can be even trickier, regardless of whether the business was the property of one spouse prior to the marriage or was formed during the union. In addition to the “standard” issues all divorcing couples face, you also have to contend with the difficult task of figuring out how to properly value and apportion your business (or the financial equivalent of one spouse’s share in the business) for purposes of the division of marital property.

Even if one spouse has no direct financial interest in the company, and it was purchased or begun by the other spouse prior to the marriage, the uninvolved spouse may still be entitled to a portion of the business’ assets or profits or an equivalent award due to non-economic contributions made that allowed the business to prosper. Such contributions often include forgoing one’s own career or educational opportunities in order to maintain the couple’s home and/or raise the children so that the other (the one more closely involved in the business or professional practice) can advance, or offering the benefit of knowledge or skills that benefit the business and allow its value to appreciate.

Assigning value

Once a determination has been made about whether the business is to be considered part of the marital estate or if it is the sole, separate property of one spouse, it could be necessary to have a financial expert like a forensic accountant assign a monetary value to the business interest. This can be done in one of several different ways. A common method is to use the “fair market value” or “fair value” of the business (i.e., what it would be worth on the open market, sometimes making adjustments to account for such factors as whether the person has control of the business’ operations and the volatility of the local marketplace). Another method is to use the “investment value” of the business interest, which is to determine what the business interest is worth specifically to the spouse who owns it, instead of using a comparable value of what it would fetch on the open market.

The value of the business depends on several different factors, among them:

  • The type of business
  • The local business market/environment
  • Business entity selection (i.e., if the business is incorporated or held as a partnership)
  • Valuation method chosen
  • Professional goodwill accrued

Apportioning value

Depending on the parties’ unique financial circumstances, there are several ways in which the value of a business interest can be apportioned. For example, a business might be sold and the proceeds of the sale split accordingly. Alternatively, one party might “buy out” the other party if the business is jointly held. Or, the parties could come to their own arrangement that “swaps” one spouse’s business interest for another asset (like keeping the marital home or vacation property instead of partaking in business-related profits). This could be accomplished through a property settlement agreement or with a prenuptial or postnuptial agreement.

Valuing and dividing business-related assets in a divorce should not be taken lightly. It certainly isn’t an easy process, and doing it improperly could cost you time and money. For more information about business valuation during a New York divorce, speak with an experienced family law attorney at the Rochester law office of Weinstein Randisi today.