Domestic Issues for Business Owners, Part 2: Separation, Divorce and Equitable Distribution

In Part One of Domestic Issues for Business Owners, I discussed the definition and value of marital property. In this post I will be highlighting how separation, divorce and equitable distribution can affect your business.

Separation

Separation is an important aspect in valuation of marital property, including business interests, because the date of separation identifies the ending date for assets to be included in the marital estate.

Divorce

There are two types of divorce, fault and no-fault. Even if you have established grounds for divorce under the fault or no-fault provisions of the Divorce Code, a divorce will not be granted until all economic issues are resolved.

What are the Economic Issues in a Divorce Proceeding?

  • Equitable distribution (division of your marital estate)
  • Support (Spousal Support, Alimony Pendente Lite and Alimony)
  • Counsel fees, costs and expenses

How will Your Business be Divided? Equitable Distribution.

Consider the total marital estate:

  • Business Interests
  • Real Estate
  • Vehicles/Recreational Vehicles
  • Bank Accounts
  • Investment Accounts
  • Retirement Accounts
  • Certificates of Deposit/Stocks/Bonds
  • Life Insurance
  • Trusts
  • Valuable Personal Property
  • Debt

Factors to be considered in Equitable Distribution 

  • Length of the marriage
  • Any prior marriage of either party
  • The age, health, station, amount and sources of income, vocational skills, employability, estate liabilities and needs of each of the parties.
  • The contribution by one party to the education, training or increased earning power of the other party.
  • The opportunity of each party for future acquisitions of capital assets and income.
  • The sources of income of both parties, including but not limited to, medical, retirement, insurance or other benefits.
  • The contribution or dissipation of each party in the acquisition, preservation, depreciation or appreciation of the marital property, including the contribution of a party as a homemaker.
  • The value of the property set apart to each party.
  • The standard of living of the parties established during the marriage.
  • The economic circumstances of each party, including federal, state and local tax ramifications, at the time of the division of property is to become effective.
  • Whether the party will be serving as the custodian of any dependent minor children.

Effect of Divorce on a Business Interest

A divorce doesn't necessarily mean a complete liquidation of a business or business interest, but rather a buy-out of the spouse's share of the business owner's share of the business. Such buy-out is one of the marital assets within the marital estate and then considered when determining the total value of the marital estate and assets to be retained by each spouse.

How the buy-out is accomplished, as well as how a business is valued, can be limited to and/or defined by agreement between parties prior to or during the marriage, as well as by agreement among the business owners prior to or during the marriage.

Other Things to Consider within the context of your Business 

How will divorce impact your business?

What is your spouse's role in the business?

  • Employment
  • Access to information
  • Client retention/reputation
  • Business development/reputation
  • Contribution to the establishment of a business and its' growth and success
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