Need a Divorce Lawyer in New Jersey?

The court process required to end a marriage can be arduous, time-consuming, and emotionally challenging. There are many issues that need to be agreed upon, including property division, child custody, alimony and more. However, divorce becomes even more complicated when one or both spouses own a business. 

The New Jersey divorce attorneys at Rosenblum Law have the expertise and experience to navigate the divorce process, even when there is a business to be dealt with. One of our attorneys will develop a solid legal strategy to protect the interests and assets of the client.

Business Valuation

One of the main challenges in a divorce that involves a business is how to accurately value the business for property division purposes. The value of the business will factor into how the couple’s other assets are divided. There are three main methods of determining the value of a business:

• Asset valuation: This valuation method takes the value of all business assets and subtracts liabilities to calculate the value of the business.
• Market: This method determines the value of a business by comparing how much similar businesses sold for recently.
• Income: This method attempts to convert the benefits of the business’s cash flow into a single value for purposes of property division.

Classification of the Business as Marital or Separate Property

Another issue to address during a divorce when one or both spouses own a business is whether to classify the business as marital or separate property. Classification as separate property means that one spouse owns the business, and thus it is not subject to equitable distribution. Classification as marital property means that the business will be considered during the process for equitably dividing property between the two spouses. 

Property, including a business, is classified as separate if the property:

• Was acquired by either spouse before marriage 
• Was inherited or received as a gift from someone other than the other spouse
• Was a settlement or jury award from a personal injury to one spouse
• Consisted of assets that both spouses agreed in writing should be classified as separate
• Consisted of assets acquired by one spouse through trading other separate property

Any appreciation in value of an asset not resulting from efforts or contribution of the other spouse is also considered separate property.

Equitable Distribution of Business Interests

New Jersey is what is known as an “equitable distribution” state. This means the court will divide property in an equitable manner, which may or may not involve a 50/50 split. New Jersey’s equitable distribution laws apply to business interests. 

There are several ways divorcing spouses may divide business interests. The most common include:

• Buyout: One spouse purchases the other spouse’s ownership interest in the business.
• Co-ownership: Both spouses agree to continue operating the business as co-owners.
• Liquidation: Both spouses agree to sell the business and divide the funds in accordance with the court’s order regarding property division.

Impact on Business Operations

A divorce can be detrimental to operating a business, especially if both spouses are owners and are involved in daily business operations. Challenges can include misalignment in tasks being performed, an inability to agree on important business decisions, and even sabotage by one spouse in the most contentious cases. All of this results in a less efficient business, which can impact profits.

Income Attribution and Support Obligations

Courts determine spousal and child support payments based on the amount of income attributed to each spouse. Attributed income, otherwise known as imputed income, also includes income each spouse earns from a business. 

If one spouse believes the court erred when imputing income, they can file a motion to modify the court order. Before doing so, they should be sure to gather the necessary evidence and documentation to prove that the income attribution was not accurate. 

Hidden Assets and Financial Misrepresentation

One spouse may try to hide assets or misrepresent their finances during a divorce. They may do this in order to keep those assets from being considered for property division or to affect the court’s decision on spousal and child support payments. 

Here are some common tactics utilized to conceal business-related assets.

• Hiding cash: Some spouses may try to hide funds from the business by keeping cash in a hidden location. This may mean hiding funds in a secret bank account or even a hidden safe in an office or at home. 
• Misreporting income: It is possible a spouse will under-report business income. This may be accomplished by overreporting business expenses or underreporting the value of business assets. 
• Friends and family hiding assets: Spouses may decide to transfer some assets to friends or family and then have them return the assets after the divorce settlement has been finalized in court. 
• Overpaying debts: By making larger-than-usual monthly payments on mortgages, loans, and other debts, a spouse may be trying to reduce the amount of funds that can be considered for property division.

Legal Strategies and Protections for Business Owners

Prenuptial and Postnuptial Agreements

One way to protect business interests during a divorce is through prenuptial and postnuptial agreements. In these legal instruments, both spouses agree to various issues that need to be decided during a divorce, including how to deal with business interests and determine spousal and child support payments. A prenuptial agreement is signed before marriage, while a postnuptial agreement is signed after the couple is married but before a divorce is filed. 

In New Jersey, a prenuptial or postnuptial agreement is considered enforceable unless a party can show that:

• They signed the agreement involuntarily.
• Full and fair disclosure of earnings, assets, and liabilities was not given or was not possible to obtain.
• They did not consult independent counsel or expressly waive their right to do so.

New Jersey only allows the following issues to be resolved through a prenuptial or postnuptial agreement:

• Property division
• Spousal support
• Arrangements of how to enact agreement provisions, which can be done through a will or trust
• Death benefits from life insurance policy
• Choice of governing law
• Any other matter except child support or matters that violate public policy

Structuring the Business to Minimize Risks

There are several options available for structuring a business to minimize risks in the case of a divorce. One option is to structure the business as a limited liability corporation (LLC) that will shield business assets from being subject to personal liabilities, including a divorce settlement. 

Another option is to implement a shareholder agreement that stipulates how business interests should be dealt with in the case of a divorce. For example, a shareholder agreement may stipulate that one spouse will buy out the other spouse’s interest in the business. 

Collaborative Divorce and Mediation

In order to avoid a contentious litigation process during divorce, many couples may opt for alternative dispute resolution (ADR). There are several types of ADR methods available during a divorce:

• Collaborative divorce: In a collaborative divorce, both parties sign an agreement not to go to court. Each must hire their own attorneys who will guide the negotiations with the aim of coming to an agreement on the various divorce issues that need to be settled.
• Mediation: Similar to collaborative divorce, mediation is another option where both sides agree to negotiate outside of court. However, with mediation, hiring an attorney is not a requirement. 
• Arbitration: Both parties and their lawyers agree to hire a third party to hear their arguments and decide on a final settlement regarding various divorce issues, including property division and what to do with business interests. 

How a Family Law Attorney Can Help

A family law attorney can assist in various ways when a divorce involves dealing with interests in a business. 

Comprehensive Business Valuation and Financial Analysis

In order to begin dealing with a business in the context of property division during a divorce, the couple will have to first determine the value of the business. An attorney can help by securing expert appraisals and forensic accountants who can analyze the business for the purposes of a divorce proceeding. 

Negotiation and Mediation

Once each spouse’s interest in a business has been determined, an attorney can advocate for their client’s interests by crafting a settlement offer. The couples can then enter mediation and attempt to reach a final agreement.

Court Representation

If a settlement agreement cannot be reached, a family law attorney can represent their client in court. 

Protection of Confidential Business Information

An experienced family law attorney understands the importance of protecting confidential business information and will take the necessary precautions to do so when guiding a client through the court process. 

FAQs

Contact Rosenblum Law Today

When business ownership is at issue, divorce proceedings can be even more difficult than usual. This means it is a good idea to obtain guidance from an experienced family law attorney who has knowledge in dealing with business interests in a divorce case. 

Rosenblum Law has a staff of professional family law attorneys who are considered some of the best in the industry. Contact Rosenblum Law today and schedule your initial consultation.