Divorce is most commonly associated with division. A couple is divided as two people part ways. Their assets are divided during the division of assets process. Time with children is divided through child custody and visitation arrangements. Often, incomes are also divided through alimony and spousal support.
Dividing a shared life is complex and subject to many influential factors. These factors have been refined through decades of New Jersey case law. Regarding assets, New Jersey operates under an equitable distribution model. Unlike “community property” states, New Jersey distinguishes between “marital property” and “separate property.” A fair asset division is determined through a multi-faceted process. The result must be fair, but it may not necessarily be equal.
The Complexity of Closely Held Businesses
Businesses are among the most significant forms of property assessed during a divorce. Negotiations or litigation proceedings regarding closely held businesses often become contentious battles. This article serves as a resource for business owners pursuing divorce to help protect their rights and interests.
The IRS defines “closely held businesses” as those with more than half of their shares owned by five or fewer individuals. These companies are often owned by family members or married couples. Before an equitable division can occur, the business must be accurately valued. Key points regarding valuation include:
- A business valuation expert is typically required to conduct an extensive assessment.
- New Jersey courts provide guidance, but the process is often more of an art than a science.
- The valuation examines the financial gain the business provides directly to the owner.
The Impact of Business Income on Support Payments
A significant aspect of valuation is how business income impacts the division of assets, alimony, and child support. Business valuations evaluate the owner’s interest by examining the direct income received. This value is subject to equitable distribution. Simultaneously, your annual income is used to assess alimony and child support payments.
This creates a “double-dipping” effect where the receiving spouse benefits from the business income in two ways:
- Through the direct division of the business asset itself.
- Through the income used to calculate ongoing alimony and support.
These situations are further complicated when the business owner is essential to daily operations. In these cases, the business’s value is highly contingent upon the owner’s continued presence and willingness to work.
Protecting Your Business and Financial Interests
Business owners are vulnerable to financial depletion during divorce proceedings. This underscores the need for a New Jersey divorce attorney with extensive knowledge in the division of business assets. Your legal counsel should have leading valuation experts available to raise critical arguments on your behalf.
Potential arguments to protect your business include:
- Distribution Percentages: The business value does not have to follow the same percentage as other assets. If a spouse did not contribute to the business’s growth, they may be entitled to a lesser share.
- Alimony Offsets: New Jersey law states that the asset division arrangement should be considered when awarding alimony. Alimony payments should reflect the portion of the business already awarded to the spouse.
Your lawyer is your greatest asset in achieving a favorable outcome. If you are a business owner in New Jersey facing divorce, contact the seasoned attorneys at Townsend, Tomaio, Newmark & Clancy for a free consultation at our Morris County offices.
