How Business Ownership May Be Divided in a Divorce

If you or your spouse own an interest in a business, you can be certain that it will feature prominently in your divorce. New York is an equitable distribution state, which means all property acquired by either spouse during the marriage is subject to division. However, a stake in a business presents special challenges, especially since the very division of ownership can have a negative effect on the business’s value.

A business ownership interest may be considered marital property in any of these circumstances:

• It was created or acquired during the marriage
• It increased in value during the marriage
• The non-owning spouse contributed in some way to the value of the business

Assuming the business is marital property, then the next question is how much it is worth. To conduct a business valuation, it is common for each spouse’s lawyer to retain accountants or professional appraisers. They will generally use one of three valuation models:

• Asset model — This method simply values the company’s assets and then subtracts liabilities.
• Income model — The company’s historical earnings, current earnings and projected future earnings are analyzed and used to compute a business value.
• Market model — An appraiser looks at sales of comparable companies of similar size in similar markets to determine how much the company is worth.

Each spouse’s appraisers often arrive at different values. When this happens, it is typically in the spouses’ best interests to negotiate and arrive at a compromise value that is somewhere in between the two estimates. This approach avoids the expense and uncertainty of litigating the issue.

Once a value is determined, a number of questions must be answered to calculate how much the non-owner spouse is entitled to. For example, did the non-owner spouse compromise his or her career to raise children so the owner spouse could focus on business? Did the non-owner spouse do things that helped the company grow without receiving fair compensation for their work?

Finally, the business interest will be allocated in one of a number of ways. The business might be sold and the proceeds divided. One spouse can buy out the other’s interests. Or, one spouse can agree to accept a larger share of other assets in exchange for giving up his/her stake in the business. In certain instances, the spouses may each be granted an ownership stake, with the original non-owner spouse receiving dividends or other forms of compensation. Avoiding a sale is often important to maintain the business’s viability and value.

At the Law Offices of Randy S. Margulis in Buffalo, we are skilled in dealing with the special considerations for dividing business ownership in a New York divorce. Feel free to call 716-886-9600 or contact us online.