What Happens to Your Business in Divorce?
In a high-asset divorce, all types of property may be involved, from the marital home, vacation home and other real estate to retirement and investment accounts. What many couples don’t initially realize is that their businesses may also be property that is subject to division in divorce.
As an equitable distribution state, New York law dictates that the courts must divide marital property equitably, or fairly, and not necessarily equally. Marital property consists of all assets acquired by either or both spouses during the marriage. In many marriages, this includes a business or business interest. It may also include:
- Enhanced earning capacity
- Professional licenses or educational degrees
When dividing business assets, one spouse may buy out the other, the spouses may continue co-ownership (which may be desirable if the divorce is amicable), or the spouses may sell the business and divide assets.
When the court divides business assets, one of the factors it considers is the economic desirability of retaining a business or interest intact and free from any claim by the other spouse. It also considers how difficult it may be to evaluate an interest in a business, corporation or profession. When dividing a business would have undesirable consequences, such as removing a spouse’s main source of income, the court may award the business to one spouse. The other spouse is awarded property or assets to offset the business interest and ensure a fair distribution.
One of the best ways to protect your business from division by the courts is to outline the division of assets in a prenuptial or postnuptial agreement. Once divorce proceedings have begun, consider mediation or collaborative divorce, which can give you greater leeway in negotiating a fair property division that allows you to keep your business interest. However, when business valuation is complex, property division conflicts may best be resolved in court.