Whether you sell pizza, provide security services or own a professional practice in your New Jersey neighborhood, your business has value. A divorce could affect the daily operations and determine if you can keep the doors open.
According to Cornell Law School, equitable distribution is the principle that determines how the court divides marital assets during a divorce. An equitable division of property means the split is fair but not necessarily equal. When addressing a closely-held business, the court considers a variety of factors.
There are several ways a professional may establish the value of your business. The type of business often determines the technique used. Evaluation methods typically include the following:
- Valuation of assets based on past and projected revenue
- Valuation based on market analysis
- Measuring assets against liabilities
Each method has pros and cons. Your situation and vision of the future help determine how you handle the business after the valuation.
Much of a business’s value lies in its ability to continue operating. There are three ways owners typically handle their business during a divorce. If you and your spouse own the organization jointly and can maintain a business relationship, you may continue operating this way. However, most people do not find this an acceptable long-term solution.
Selling the business and dividing the profits lets both of you start the next phase of your life with a clean slate, with no ties to the organization. Selling a business takes time and must continue operating until finding a buyer. As a result, you may have to maintain the operations and profit-sharing in the meantime.
The preferred method for most couples involves an equitable division of assets where one spouse keeps the business and offsets its value with other assets. For example, you may keep the business while your spouse keeps the family home, a 401(k) or other property with a cash equivalent.
When spouses own one or more businesses, dividing assets can become complicated. Understanding how the court views equitable distribution and the factors affecting asset values can help you achieve the best possible outcome for your business during the divorce process.