Will I Lose My Business in a New Jersey Divorce?

You may have spent years building your business, developing relationships with clients, and making various sacrifices to ensure the company remains successful. Therefore, if you are now facing a divorce, you are most likely wondering whether your spouse can claim part of the business, whether it will have to be sold, and, ultimately, whether everything you worked for is at risk. Fortunately, even when a business is considered marital property, this does not necessarily mean you will lose it. To learn more about how courts in New Jersey treat businesses in divorce, read this blog and reach out to a skilled Atlantic County business owner divorce lawyer from the Law Office of Stephanie Albrecht-Pedrick, LLC.

Is My Business Considered Marital Property?

Generally speaking, a business created or acquired during a marriage may be considered marital property, even if only one spouse’s name is included on its formation or ownership documents. New Jersey follows the equitable distribution rule, which means marital property is divided in a manner the court considers fair, rather than simply being divided equally between spouses. When deciding whether some or all of a business is marital property, courts may consider the following:

• When the business was formed or acquired
• Whether marital funds were invested in the company
• Whether either spouse worked for or otherwise contributed to the business
• How much the company increased in value during the marriage
• Whether personal, marital, and business finances were kept separate
• Whether a prenuptial or postnuptial agreement addresses the business

If you started your company before getting married, the business may initially be considered separate property. That being said, any increase in its value during the marriage may be subject to equitable distribution, especially if that growth resulted from your work or your spouse’s direct or indirect contributions.

What Will Happen to My Business in a New Jersey Divorce?

Before your business can be divided, its marital portion will most likely have to be identified and valued. A business valuation professional may examine the company’s income, assets, debts, expenses, cash flow, ownership interests, and goodwill to determine its fair value.

Once the value of the business is established, several things may happen, including the following:

• You may keep the business while your spouse receives other marital assets of comparable value.
• You may buy out your spouse’s interest through one payment or a structured payment plan.
• You and your spouse may temporarily maintain an ownership interest in the company.
• The business may be sold, with the proceeds distributed between you and your spouse.

Understandably, courts generally recognize that forcing former spouses to continue running a business together may create significant problems. For this reason, one spouse frequently keeps the company while the other receives a buyout or additional property, though the outcome will depend on the financial circumstances of the marriage.

You should also note that business valuation is often one of the most contested parts of a business-owner divorce. This is especially true when there are allegations involving hidden income, personal expenses being paid through the company, unusual accounting practices, or an owner attempting to reduce the business’s apparent value.

Are There Any Ways to Protect My Business From a Divorce in New Jersey?

The best time to protect a business is typically before a divorce is on the horizon. Some potentially useful steps can include:

• Creating a valid prenuptial or postnuptial agreement
• Keeping business and marital accounts separate
• Maintaining complete and accurate financial records
• Avoiding the use of marital funds for business expenses
• Paying yourself reasonable compensation
• Creating a shareholder, partnership, or buy-sell agreement
• Documenting the business’s value before getting married

Of course, these measures cannot guarantee that your business will be entirely protected from equitable distribution. Additionally, you should never transfer, conceal, or intentionally undervalue business assets in anticipation of divorce, as doing so can lead to serious legal consequences.

The bottom line is that owning a business can make the divorce process considerably more complicated, particularly when both spouses disagree about its classification or value. If you believe your company may be affected, you should speak with an experienced New Jersey divorce lawyer who can assess your financial situation and work to protect the business you have spent years building.