New Jersey is an equitable distribution state. That means that marital property is divided equitably, or fairly. The division may or may not be equal.
Marital Property
The first step in equitable distribution is deciding which assets are included in marital property and which are separately owned. In New Jersey all assets obtained during the course of the marriage are considered marital property. Property owned before the marriage or after either spouse files for divorce is excluded. So are gifts or inheritances intended for one spouse only.
New Jersey businesses are held to that same standard. A business that was obtained during the course of the marriage by either spouse is marital property. If one of them owned the business before their marriage or if it was specifically given to one spouse as a gift or an inheritance, then it will be considered separate property; however, if the other spouse contributed to its increase in value, then that increase will be part of the marital property.
Dividing a Family Business in New Jersey
Before a business can be divided, its value must be determined.
Standard of Value: Fair Value
Until 2002 valuation was based upon “fair market value.” That means that factors such as who might be interested in the property and how long it might take to sell were taken into consideration.
In 2002 a decision by the Appellate Division changed the way New Jersey businesses were to be valued. With that decision the standard of value changed from “fair market value” to “fair value.” Marketability would no longer be a factor to consider.
How you handle the division of the business assets will likely be a difficult decision. Among the things that come into play are the role you played in running the business and building the business, your relationship with your soon-to-be ex-spouse, and the prospects of the business going forward. The following are three basic choices:
Option One:
If you and your soon-to-be ex-spouse can maintain a professional relationship, you may be able to continue the co-ownership. Of course, many divorced couples would find this difficult if not impossible. One positive aspect of this choice is that no valuation would be needed; this would save a lot of money. It also eliminates the hassle of having to sell the business.
Option Two:
The second option is that one spouse buys out the other. If this is your choice, a business appraiser will have to be hired to establish a fair value of the business. One spouse will use monetary or other assets to purchase the other’s share. For example, in lieu of cash, an exchange might be made: ownership of the business for ownership of the family home.
Option Two:
The third option is to sell the business to a third party and divide the profit. This choice involves the hiring of an appraiser to set a realistic selling price.
Complicated Issues
The division of marital assets presents unique problems when a family business is involved.
As experienced NJ divorce lawyer will understand how to address these and other factors that may impact property distribution in your divorce:
- the difference between the fair value and fair market value of your business;
- the contribution each party made to the success of the business; and
- the overlapping of income used to value the business and the income used to determine child and spousal support.
If you are facing a divorce involving a family business it is crucial that you retain an attorney who understands NJ divorce and family law and who can protect your interests.
Do you have questions about a family-owned business and divorce? The experienced divorce and family law attorneys at Aretsky Law Group, P.C., can answer your questions about prenups, postnuptial agreements, property distribution, alimony and related issues. For an initial consultation, call us 24/7 at 800-537-4154.