Own a Business? How to Value and Divide Business Assets in a Divorce

When one or both spouses own a business, the divorce process becomes significantly more complex. A business is not just a source of income; it's a major asset in itself and can become a central point of contention in the division of property.

Under New Jersey law, a business started or increased in value during the marriage is considered 'marital property' and is subject to equitable distribution.

Step 1: Determine if the Business is Marital Property

The first step is to determine if the business, or a portion of it, is subject to division.

• Business started during the marriage: It is generally considered entirely marital property.
• Business started before the marriage: The business itself may be 'separate property', but any increase in its value during the marriage can be considered marital property. Even if the other spouse did not work directly in the business, their indirect contributions as a homemaker or parent can be recognized.

Step 2: Business Valuation

To divide a business, its value must first be accurately assessed. This is one of the most technical and highly contested aspects of a divorce involving a business. It typically requires the help of experts:

• Forensic Accountant: This professional analyzes the business's financial records, assets, liabilities, profitability, and market position to determine an objective value.

The expert will use various methods—such as asset-based, market-based, or income-based approaches—to determine the Fair Market Value of the business.

Step 3: Decide on a Method of Division

Once the value is established, you must decide how to divide it. There are several common approaches:

• Buyout: This is the most common method. The spouse who runs the business buys out the other spouse's interest, paying them with cash or other assets of equivalent value (e.g., their share of the family home).
• Co-ownership: In rare cases, the spouses may decide to remain business partners after the divorce. This is only feasible if their relationship is exceptionally amicable.
• Sale of the Business: The business is sold to a third party, and the proceeds are divided between the spouses.

A divorce involving a business requires sophisticated financial and legal knowledge. To protect the business you've worked hard to build and ensure you receive a fair distribution, it is critical to have a team of experienced attorneys and financial experts on your side.