Dividing a business in a New York divorce

When a couple divorces in New York State, assets that they accumulated during the marriage are subject to equitable distribution. These assets frequently include a business that the couple started together or one spouse owned prior to the marriage and continued to develop with the other spouse’s support.

A company is considered a marital asset when:

• It was established, and commenced operation after the marriage took place OR
• It was founded before the couple married but increased in value afterward

Distributing the assets of a business requires that a thorough and accurate valuation be carried out beforehand. This means that any items or resources that contribute to the value of the company must be presented for calculation.

Calculating business assets for distribution purposes

Business assets generally fall into one of two categories:

• Tangible: Properties such as inventory, equipment, company vehicles, cash, and stocks
• Intangible: Patents, trademarks, and similar items that represent value

Professional valuators require clear and complete information about the business (for example, products and/or services) and at least five years’ worth of detailed financial statements. Examples of the latter include:

• Statements for income and cash flow
• Balance sheets that accurately reflect sales, profits, and losses
• Records of owner equity in the business

When assigning value to a business interest, there are three potential approaches that may be taken:

• Valuing the assets: This formula is relatively straightforward: calculate the overall worth of the assets and subtract any liabilities to come up with the value.
• Valuing according to the market: With this approach, a business’s value is calculated by comparing it to similar companies that have recently been sold.
• Valuing according to business income: The valuator uses historical data and certain formulas to anticipate future cash flow and profits. This tends to be the most common approached used to determine a value of a company.

If the business was owned by one spouse prior to the marriage, then any increase in value may be subject to division. For example, if the husband owned a hardware store before getting married and subsequently invested $50,000 of marital funds to move the business to a new location, his spouse would be entitled to half of that investment value upon divorce. If the move resulted in a dramatic increase in sales, then the wife would also be entitled to a percentage of those profits.

Dividing a business during a divorce action is a complicated undertaking that requires expert input. If you are planning to divorce in New York City, then seek the assistance of a family law attorney with experience in representing clients with higher net-worth assets. They will use their experience and insights to protect your interests and help you realize your fair share of the company’s worth. At Eskin & Eskin, P.C., we are proud to call ourselves a family law firm for family matters. We use our 40+ years of combined experience to help our clients protect their rights in family and divorce court every day. Call 718-402-5204 for a free consultation and visit us on the web at www.EskinAndEskinLaw.com