How a Business is Divided in New York Divorce

NYC Divorce Attorney Explains Division of Business Assets

Video Transcript:

Carla Barone: 

Every business is different, so that can get more complicated depending on the nature of the business.

Molly Hendrickson: 

What do you need to know if you own a business and you're getting divorced? We're gonna find out right now, on this episode of Ask The Lawyer. My guest is New York City Attorney Carla Barone, and I wanna remind you that if you wanna ask Carla questions about your situation, it's easy, go to askthelawyers.com, click the button up top that says "Ask a Lawyer," or you can always call the phone number you'll see at the top of the screen. Carla, thanks for joining us today.

Carla Barone: 

Thanks for having me.

Molly Hendrickson: 

So first off, when a business owner is getting divorced, is that business part of the divorce proceeding?

Carla Barone: 

Yes, it is very much a part of the divorce proceeding in a couple of aspects. A, the spouse of the business owner, so we would call him or her the non-titled spouse, the person who's not working in the business, does have the ability to value the business to get to the portion of what is the marital portion of the business, what is the property valued at, the business valued at as a part of the marital estate, and then whether or not that that spouse has contributed to the business, either directly or indirectly, meaning financially or just through the support of the spouse who is working the business is factored into and recognized in our equitable distribution laws in New York.

Molly Hendrickson: 

So are businesses typically marital property or are they considered separate property and are these lines ever blurred?

Carla Barone: 

Yes, so if the business is part of the marital estate at the time the couple is divorcing, it is certainly considered marital property. It does get blurred because many business owners and businesses have been in existence before the marriage, so there will be a factor in the business valuation as to the non-marital portion or the separate property portion of the business, so this can get very tricky. A business evaluator who is equipped to value the business for equitable distribution purposes, is an expert witness that will be needed to be retained in the case to do the proper valuation and apportionment as to marital and non-marital and of course, every business is different, so that can get more complicated depending on the nature of the business.

Molly Hendrickson: 

And how do you actually divide a business during a divorce? Does one person have to buy out the other person, or are there other ways to divide it up?

Carla Barone: 

That's a really great question. In terms of implementing that, courts will not dismantle the business or force a sale of a business that is somebody's certainly, income source and asset. What generally happens is the business owner who has been working in the business all the years of the marriage will continue to do so, and there will be a percentage share that's allocated to the spouse as his or her equitable interest in the property and that will be accomplished either by a buyout, a direct cash payment, cash, check or otherwise, or it will be accomplished with an offset of other assets, perhaps there's a home, and if the home and the portion of the business that the spouse is getting are sort of equivalent, there could be an offset. There are many factors that go into that, taxes and otherwise that needs to be considered when you're offsetting assets, but that's another way that it's done, but the courts will not compel a sale of a proprietary interest in a business.

Molly Hendrickson: 

So you don't actually have to have necessarily the cash and buy the other person out, but when you're determining the worth of a business, how do you determine the value of a business?

Carla Barone: 

While there are a number... So what we as divorce practitioners do is we won't attribute value ourselves, we're not expert in that area. What the law firms will do is agree upon or have a court appoint a forensic business valuation expert to do that. And so we will choose somebody known in the community to take on that work, they'll generally look at five or more years of the books and records and consider all kinds of things, considering how the business operates, its sources of income and revenue, profits, percentage of profit, growth over the year, and there are many valuation methods. Depending on the nature of the business, a valuation method will be chosen by the expert and analyzed, and we will as practitioners be provided with a comprehensive report as to the value.

Molly Hendrickson: 

Can you talk a little bit about what a closely held business is, and does that classification make a difference when determining the worth of a business?

Carla Barone: 

It can. Closely held business is usually considered business where shareholders or partners are in the same family, where there's been a family-run business, things of that nature, and those, there are certain factors that the valuation expert could take into consideration in a closely-held business, and the way various expenses and revenues are dealt with in that context. So yes, when a business valuation expert is taking the case for valuation purposes, they will ask questions regarding the nature of the make-up of the business structure.

Molly Hendrickson: 

Carla, great information today. Always nice to talk to you. Thank you so much for joining us.

Carla Barone: 

Thank you.

Molly Hendrickson: 

And that's gonna do it for this episode of Ask The Lawyer. My guest has been lawyer Carla Barone. And if you want to ask Carla questions about your situation, go to askthelawyers.com, click the button at the top of the page that says, "Ask a Lawyer," and it'll walk you through the very simple process. Thanks for watching, I'm Molly Hendrickson for Ask The Lawyers.

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