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How is a family business divided in a New York divorce?

On Behalf of | Oct 13, 2022 | Divorce

In any New York divorce, one of the most common problems in reaching a rapid settlement is property division. People might equate this to mean a marital home, automobiles, jewelry, collectibles and financial assets. Of course, these are included. Another issue that comes up and can be troublesome is if there is a family business. From the start, the parties should know the law and be ready for what they may face as the case proceeds.

How is a business viewed during property division?

The term “equitable distribution” is used with deciding how property is split. In New York State, the court strives for a fair result in how the property is divided between the parties. That does not mean equal. It divides property into the categories of marital property and separate property. Some property is commingled, meaning it is a mix of marital and separate.

For those who are wondering how this impacts a family business, there are facts to be aware of. A person who started a business before the marriage will retain it as part of the divorce. If it was started after the marriage, it will likely be marital property.

Separate property is anything that was acquired prior to the marriage from someone apart from the spouse. In some cases, the sides can have an agreement detailing separate property prior to the marriage. Marital property is what was acquired after the sides were married except for items that were given to one spouse through inheritance or was part of a personal injury award.

As part of the equitable distribution process, the court will look at the income and property when the marriage began, how long the couple was married as well as their age and health, if child custody and retaining the marital home is an issue, if pension and inheritance will be lost once the marriage is dissolved, health insurance coverage, maintenance, the financial situation, taxes, transferring of debts, if there was violence in the marriage and other factors.

Regarding a business, the court will try to come to a reasonable understanding of how to evaluate its value and split it fairly. For example, many couples have financial situations that are entangled with the business and it can be hard to find where it should be divided in a fair way. This is true whether the business was intact before the marriage or started after the marriage. For a large portion of family-run businesses, even the non-owning spouse contributed to it in some way, so this must be considered.

Among the obstacles that can come up for debate are if the person who did not own or run the business still contributed to its success and growth by providing a stable home life, caring for children, giving tactical advice and just being there as a sounding board for the other person. This can happen for people who are younger and just starting out when they end the marriage or those who have been married for an extended period, are older and are in the middle of a so-called “gray” divorce.

Dividing a family business in a divorce can be addressed with professional help

Divorce is emotionally and personally challenging without facing rampant disagreement over finances and how assets are divided. When there is a business at stake, it can lead to hard feelings and a painful back and forth as to who is entitled to what from the business. This is true whether one party started the business before the marriage and is technically entitled to it or if it came into being after the marriage and both sides contributed to it with one doing the bulk of the work.

Regardless of the perspective—the person who owns the business and the one who does not—it is imperative to have professional help that understands the complex issues that arise in these types of family law cases. To try and reach a positive result whether that is through a negotiated settlement or by going to court, it is wise to have experienced advice. Calling for help as soon as the divorce is being considered is useful to reach a reasonable outcome.