The American dream includes working hard and achieving your goals for yourself and your family. There are twenty eight million small businesses in the United States, and behind each and every one are hard-working individuals striving to make the business a success. Husband and wife teams are frequently behind these businesses and may have spent decades working on the business and helping it to grow. When the relationship disintegrates and the parties divorce, the family business they have built will be one of the pieces of the marital estate that will be subject to division by the divorce court. In New Jersey, all marital assets are subject to an equitable distribution, so when there is a family business, each spouse will be entitled to his or her fair share of the value of the business. However, valuing a business is often exceedingly complicated. Unlike a couch or a bank account, there are many moving parts.
The top issue is the standard that will be used in valuing the business. In the majority of cases, the parties will need to hire an expert to do an accurate valuation. However, different professionals may vary in their standards on how they affix value. Before going forward with hiring a particular expert, it is important to know what standard they use, whether this standard is practical for your business, and whether the value standard is generally accepted by courts in your area.
Another issue is one that is sometimes referred to as “double dipping.” This refers to the concept that in calculating a spouse’s income, it may be based on the future income of the business. However, that same future income will also be taken into account when the equitable distribution of the business and its assets are made. Therefore, the spouse that is being “bought out” of his or her share may stand to benefit twice from the future earnings: once from the equitable distribution and again from receiving alimony or child support. There is no prohibition in New Jersey against this concept, so spouses should be aware of how the value of the business can impact other areas of the divorce.
Finally, fraud can be a big issue for business valuation. This would be especially prevalent where one spouse is involved minimally with the business and has no real concept of the business’s assets and liabilities. In such a case, an unethical spouse could try to hide income or assets in an attempt to defraud the other spouse out of his or her fair share of the business. A good way to handle this is to hire a forensic accountant to look over the business’s accounting in conjunction with the expert business valuator.
If you are facing a case involving division of your family business, we can help you. Call us today at (732) 529-6937 to talk about your divorce and how the court may approach your assets.