Divorce and Your Business: Protecting What You've Built in New York
Divorce is never simple, but for business owners in New York, unique financial and legal complexities arise that make the process even more challenging. From understanding equitable distribution to navigating documentation requirements, it’s crucial to be prepared. This article offers essential guidance on what business owners should know when facing divorce in New York.
1. Understanding Equitable Distribution in New York
In New York, assets acquired during marriage are subject to "equitable distribution," which divides assets fairly but not necessarily equally. For business owners, this means that their business may be subject to valuation and division, even if they are the primary titleholder.
Unlike in some other states, it's rare in New York for a spouse to receive a full 50% of a business's value.
Various factors affect the division percentage, including the length of marriage, the non-title spouse's contributions, and whether they worked in or financially supported the business.
2. Business Valuation: What to Expect
To determine the business’s value, New York courts may appoint a neutral forensic accounting firm. Alternatively, each spouse may hire their own experts, who might differ in their assessments. The valuation process considers not just the current worth of the business but also any appreciation gained during the marriage.
A thorough financial examination is part of this process, which may require business owners to provide tax returns, ledgers, and expense records.
It’s vital to be prepared for in-depth discovery and the requirement to turn over potentially sensitive business information.
3. Separate vs. Marital Property and Burden of Proof
If the business existed before the marriage, it might qualify as separate property, though any appreciation during the marriage could be considered marital. Business owners should be ready to demonstrate the business's value at the time of marriage, a crucial step that may help clarify the marital portion of its current value.
Business records that show the pre-marriage value are essential for asserting separate property claims.
If a business has family ties or inherited assets, extra precautions may be needed to prove ownership and prevent the mingling of separate and marital property.
4. Non-Tangible Contributions and the Role of Each Spouse
Spouses can contribute to the business in non-tangible ways, such as through home management or childcare. These efforts can be considered marital contributions, potentially increasing the non-title spouse’s entitlement in a divorce.
Lawyers will evaluate each spouse’s role, focusing on both direct business contributions and support roles that enabled the business owner to focus on their work.
5. Protecting Your Business Before and During Marriage
Business owners can benefit from preemptive steps to protect their business assets. A prenuptial or postnuptial agreement, for example, can establish clear ownership rights and prevent future complications.
Owners with family businesses should consider proper documentation, such as gift tax returns, when transferring stock or assets to married children to avoid later disputes.
Divorce is complex, especially for New York business owners who must navigate the state’s unique equitable distribution laws. Proper planning, understanding the valuation process, and knowing when to seek expert guidance are crucial steps. By staying informed and prepared, business owners can manage divorce proceedings with a clearer sense of control and outcome predictability.
