Division of Corporate Assets in Divorce
Separate property and marital property
Divorce and business are two words together that are cringe worthy, conjuring up images of long, drawn out divorces and the destruction of businesses and business assets. While this does happen, there is a method to the madness and the courts of New York do their best when dividing a business in divorce.
Upon the dissolution of a marriage, the marital estate will be divided and divorce business assets will be distributed among the spouses in accordance with state law. When looking at a divorce and business assets courts try to see not only the immediate fair and equitable distribution but the long term interests of a business and even take into consideration any children who would have stake in the survival of a business. A New York business divorce is no different than any other type. In dividing and distributing the marital estate, the court must first differentiate between “separate property” and “marital property”. Generally speaking, there are four types of separate property:
- Property acquired prior to the marriage
- Property that is inherited
- Property that is gifted
- Property that is designated as separate in a valid prenuptial or postnuptial agreement
All other property acquired during the marriage is usually considered as part of the marital estate and is therefore considered as marital property, subject to division and distribution by a court. Like other marital assets, corporate or business assets acquired during the marriage are subject to division and distribution. Corporate or business assets acquired prior to the marriage will generally be considered as separate property, however, any appreciation in the business over the course of a marriage can be treated as marital property. A business divorce can get messy without a strong New York divorce lawyer with experience in the equitable distribution of business assets to help guide decisions along the way.
Equitable distribution and community property
Business assets in divorce are treated differently in an equitable distribution state than a community property state. Depending on what state you live in, the division and distribution of corporate assets may be governed by the “equitable distribution” doctrine or the “community property” doctrine.
States with equitable distribution laws will divide and distribute the marital estate in what the court perceives to be the most “fair” arrangement for each spouse. The court will take into account many factors, such as the length of the marriage, the age of each spouse, and the future earning potential of each spouse when deciding on the details of such an arrangement. Ultimately, the court seeks to divide and distribute the assets so that each spouse can sustain a minimum standard of living going forward.
States with community property laws typically divide and distribute the marital estate 50/50 between each spouse. In a ny business divorce the business is subject to equitable distribution and the amount of money or stake in the business is equal to what each partner contributed, either explicitly by working in the business or working to support it.
Protecting your business: How to handle a NY business divorce
A divorce of two people is not always a divorce business or a divorce of the business. Your business and divorce both don’t have to dissolve at the same time. In a divorce, business owners look to save the business at all costs. Many business owners want to protect their business from the risks associated with divorce. The best way to accomplish this is by drafting a legally valid prenuptial or postnuptial agreement that specifies, among other things, whether or not the business will be considered as separate from the marital estate and/or how the business will be divided and distributed in the case of a divorce. In a divorce, business valuation is a large part of the equitable distribution formula and therefore, businesses that are not protected by a prenuptial or postnuptial agreement are at risk of future dissolution. Contact an attorney who specializes in family law and business divorces so that you can learn how to protect your business.