- April 8, 2022
File Under: Equitable Distribution, Family Law, Marital Settlement Agreement
Dealing With Your Business in a Divorce
When New Jersey business owners decide to divorce, they may face particular challenges that can lead to significant concerns about the future of their company as well as their economic future. Business owners, majority shareholders, board members and CEOs may all have unique concerns about how their divorce may affect their business plans. A divorce attorney can provide detailed advice and guidance for navigating the end of a marriage while protecting your business assets.
Avoiding Disruption of Business Operations
Avoiding the disruption of a business’ work or the winding down of operations may be a major goal for business owners going through a divorce. The end of a marriage is almost always a stressful time, even when both spouses are relatively amicable. This is exacerbated, of course, when there is a higher level of conflict between them. Property division is often one of the most challenging parts of a divorce, especially when the spouses have significant assets, such as a valuable investment portfolio or a successful business.
A New Jersey family law attorney can work with you to help to mitigate the effects of divorce on your business. Aside from child custody decisions, which are often the most emotionally fraught, financial matters can be the most difficult. A larger pie to divide may lead to greater competition for the outcome, and businesses in which spouses have been involved may lead to emotional as well as financial attachments.
New Jersey is an equitable distribution state. This means that marital assets are divided by the family courts in a way that aims to be equitable and fair to both parties. In some cases, this may involve a 50/50 split, but in other cases, it can involve other types of division or different assets being distributed in different ways between the parties.
In a litigated divorce, the New Jersey family court judge may make the final decision about property division. However, in most cases, the two spouses are able to reach some agreement about the distribution of their assets through mediation, negotiations or another process. As a result, the Marital Settlement Agreement that they reach may be approved by the judge as long as it meets the standards of state law. This process can be challenging and lengthy if the two parties do not agree about a fair division, and a family law attorney can work with you to best represent your interests throughout the divorce process.
Managing Your Business During the Divorce
Even in a divorce where much of the business’ value may be on the table in divorce negotiations, it can be important to keep the company up and running during the divorce. Because a divorce can be emotionally draining as well as time-consuming, some business owners may shift their focus from business operations to the divorce itself. You may need to bring on additional help to keep the business running not only to preserve your future income but also to avoid potential allegations that you are allowing the value of the business to plummet to lower its valuation in the divorce settlement.
If you own a majority of the company, your estranged spouse may receive a significant portion of the value of the business as part of the divorce settlement. There are different ways that this can be handled, depending on the relationship between the parties and each spouse’s level of involvement in the business. If both spouses had been active in the business and its operation, they may both need to consider how their working relationship can move forward.
Some business partners are able to continue the working relationship even when the marriage has come to an end. This may be especially true if the divorce is relatively amicable or if the business relationship predated the romantic relationship. Your family lawyer can provide advice about how to handle this situation and move forward as business partners after the divorce brings the marriage to an end.
Dividing stock and ownership with a spouse without their own strong attachment to the company may lead to greater problems. This is especially the case in a high-conflict divorce. After the divorce is finalized, the arena of conflict may shift to business operations. Former spouses may put more effort into outmaneuvering each other rather than increasing the profitability of the business.
Potential Solutions for Divorcing Business Owners
There are different ways that you and your divorce lawyer can negotiate to manage dividing interest in a business as part of the divorce process. For some couples, the business is the largest single asset they own. However, other couples may have other significant assets, such as the marital home, investment portfolios, retirement accounts or costly art and collectibles. By providing the other spouse with a greater share of these assets, both parties may be able to negotiate an agreement with the assistance of their respective family lawyers that keeps the business in the primary owner’s hands.
In other, more amicable cases, spouses may negotiate a buy-out agreement for payment over time. This can be a supplement or an alternative to alimony. Rather than receiving stock in the company or a lump sum payment, the other spouse may agree to be gradually paid out of their interest in the business in the coming years. This may give more time to the business owner, preserve the business and also provide reliable income for the years to come for the other spouse. It may be necessary to secure this type of settlement with a life insurance policy, much like is the case with alimony or child support payments.
In other cases, you may choose to sell part of your stake in the business, potentially with a buy-back agreement. This could provide greater available cash to lead to a monetary settlement rather than one dependent on dividing a stake in the business itself. When the other spouse is content to remain outside the business but prefers a lump sum settlement rather than a gradual payoff, this can provide a solution for some business owners.
When the two parties are in a very high level of conflict, they do not have other significant assets or they are unable to reach an equitable settlement, they may decide on the most severe option: selling the business. This may be a drastic and unwanted solution for many business owners, but it may be less troubling for passive owners who are less engaged in day-to-day operations. The funds from the sale of the business–much like proceeds from the sale of the marital home–may be divided according to the overall divorce settlement.
There are ways to work with a divorce lawyer to prevent or limit later conflict over the future of a family business or another type of closely held company. A prenuptial agreement may limit the involvement of the business in the marital estate although there may be some issues to resolve depending on the extent to which the marital standard of living was linked to the business. New Jersey judges tend to keep a close eye on postnuptial agreements to limit asset division. However, keeping the business as separate as possible from marital finances may limit the extent to which it is divisible in the divorce process.
Consult a New Jersey Divorce Attorney
Your family lawyer can work with you to plan a strategy for a New Jersey divorce involving a business. Contact the experienced New Jersey family law attorneys at Lawrence Law by calling 908-645-1000 or using our convenient, secure online form for a consultation about the effects of divorce on your business at our Red Bank and Watchung offices.