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Protecting Assets in a Divorce: What is Your Business Really Worth?

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If you are a business owner or if you hold an interest in a lucrative entity, consider the following: you toiled for years contributing to what is presently a profitable business when you find yourself in the midst of a divorce proceeding. As an individual who oversaw or contributed to the growth of a company you are, of course, concerned about more than just the emotional, social, and practical concerns of divorce; you are understandably concerned about the financial consequences arising from the dissolution of your marriage. As an individual who understands the value of both time and money you surely appreciate you cannot spare either. So, what does the law in New Jersey say about your spouse’s right to share in the company’s profits and your good fortunes?

First, if your business venture commenced during the marriage, you have likely accepted that our laws safeguard your spouse’s right to share in your good fortunes, notwithstanding the extent of his or her financial or sweat equity contribution, or lack thereof, to the financial success of the business. You might not know, however, that our laws also carve out certain nuances which afford your spouse the right to share in the value of the business even if it pre-dates the marriage and even if your interest in the business is not that of an owner, e.g., your interest is that of minority shareholder in a close corporation. Qualifying accurately the “value” of your business interest is paramount for purposes of equitably distributing your marital assets. After all, how can the court really know the value of your business interest without compelling you to sell your interest?

Is the value of the company or your interest in an entity in the physical assets it holds, the profits it generates, or does the value of your interest correlate directly to your day-to-day labors? More importantly, what does this mean with regard to your financial circumstances post-divorce? Needless to say, business valuations and the methodologies utilized by financial experts are often beyond the know-how of family law judges, family law attorneys, and, in all frankness, the financial intricacies of your business interest are likely beyond the understanding of your spouse.

Unfortunately, quantifying the actual value of the business or your interest in an entity often results in an equitable distribution scheme which is anything but equitable—this is particularly true in those divorces where the “value” of a business interest is less than clear-cut. What is the value of an insurance company anyway? If the profits of your business interest stem directly from your day-to-day efforts, i.e., if your profits depend on your solicitation of new clients, it is likely best to steer clear from relying on the asset-based valuation approach. Conversely, if you hold an interest in a commercial construction company the machinery utilized in the day-to-day operations of the business clearly holds value. Even if you are amenable to selling your business interest and distributing those profits with your spouse, what can you expect when there exists no readily discernable market for such an interest? While most family law judges lack an understanding of those substantive issues underlying business valuations, it is nevertheless critical you ensure your business interest is properly valued lest you be saddled with an unsustainable financial obligation or a wholly inequitable allocation of your marital assets.

The DeTommaso Law Group, LLC, LLC can help you protect your assets by ensuring that your business interest is properly valued in a manner favorable to your post-divorce finances. Whether you are on the precipice of a divorce, in the midst of a divorce litigation, or if you are finally beginning to see a light at the end of the tunnel, our attorneys understand the importance of comprehensive, detail-oriented, and aggressive representation. Contact us to schedule a consultation.

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