You Can Separate from Your Spouse, but Without a Divorce Complaint, You Can’t Separate Your Spouse from Your Business (Interest)
The law of New Jersey is clear: Where one spouse owns a business (the owning-spouse) during the parties’ marriage, the other spouse (the non-owning spouse) is likely entitled to a portion of the value of that business as of the filing of a Complaint for divorce. Why? Because marriage is considered a partnership in New Jersey – a financial partnership, not just an emotional partnership. Even if the non-owning spouse had no direct contact or relationship with the owning spouse’s business, that non-owning spouse is still entitled (unless extraordinary circumstances exist) to some portion of the value of the business as of the date of the Complaint. The theory behind the law is as such: the non-owning spouse who was not directly involved in the business was likely nonetheless involved in the growth and value of the business as a result of indirect efforts that afforded the owning spouse the time to focus on the growth of the business (i.e., the non-owning spouse performed domestic duties and raised the children, allowing the owning spouse to concentrate his or her time on growing the business). In these situations, the non-owning souse is financially compensated for his or her indirect efforts by receiving a percentage of the value of the business, usually determined as of the date of Complaint for divorce.
But what happens when a married couple has separated for a lengthy period of time? In such a situation, should the non-owning spouse still be credited for his or her indirect efforts during the period of separation? After all, the parties were no longer living in a true “marital partnership” since they were living apart. Can there still be a credit to the spouse who didn’t own the business? In other words, can the non-owning spouse who is no longer living with the owning spouse still be financially compensated based on the value of the business after the separation?
According to the Appellate Court, the answer to the questions above is a definitive “yes”. In the case of Fox v. Fox, the Appellate Court determined that even when married parties choose to no longer reside together, there may very well still exist indirect efforts on the part of the non-owning spouse that continue to allow the owning spouse to concentrate more on his or her business. In this particular case, the separation of the parties (as a result of the owning spouse leaving the marital home) actually increased the impact of the non-owning spouse’ indirect efforts since the separation actually gave the owning spouse more time to focus on the business while he was no longer living in the marital home. Stated differently, the Court found that the parties’ separation resulted in the non-owning spouse taking on more parental and domestic duties, while the owning spouse was subsequently afforded even greater time than he had during the marriage to pursue the goals of the business. As a result, the business was valued not at the time of the parties separation, but rather years later when a Complaint was finally filed, and the non-owning spouse was financially compensated for the increase in value of the business during the separation, despite the fact that the parties were no longer living as a married couple.
What lessons can be learned from Fox? There are certainly at least three. First, if you are the owning spouse, never assume your spouse is going to receive a portion of the value of your business as of the date of separation. You must file a Complaint in order to ensure the end of your spouse’s entitlement to the value of your business. Second, if you are the non-owning spouse, remember that a separation from your spouse does not mean your entitlement to the value of your spouse’s business is determined as of the date of separation. Make sure you seek the financial compensation for the value of the business as of the date of the Complaint for Divorce. Third, and perhaps, most critically, unless you have some form of an irrefutable contract in place determining the date upon which you or your spouse’s business is to be valued for purposes of financial distribution upon divorce, realize that the only way to ensure the date for purposes of valuation is to not just separate, but actually file for a divorce.
It’s all a matter of timing in the divorce process, and the timing of your Complaint, as proven by Fox, can mean everything.