As a business owner on the cusp of divorce, determining how the entity figures into the settlement could cause more contention than all other assets combined. New York is an equitable division state, which typically means the property split, while fair, is rarely equal.
The American Bar Association states that nonmarital property includes that which you and your spouse brought into the marriage, kept in your respective names and did not comingle with marital property. As part of the divorce process, you both must identify, value and divide only marital assets. However, if one or both of you have an ownership interest in a private business, property division becomes more complicated.
Evaluating marital or separate property
Whether the business falls under marital or separate property depends on several factors, including the following:
- Whether the acquisition occurred before or after the marriage date
- What funding source you used in acquiring or starting the business
- The extent of personal and financial contributions by each spouse
If the business falls under guidelines for marital property, it does not matter if both of your names are on the formation or acquisition paperwork. However, if you have a prenuptial agreement, you may specify the manner in which you address the business if you dissolve the marriage.
Ascertaining the value
Having an official business valuation can determine the worth of your business interest. The industry and type of business are among the determinants that influence the appraisal method used. The three primary methods used for the valuation include the asset approach, income approach and market approach.
Regardless of the method, several key factors affect the organization’s value, from cash flow, cash reserves and investments to physical and intellectual property assets. Human capital, real estate and contracts may also add significant value to the business. Independent qualified professionals can conduct the appraisal, and in many cases, each spouse hires an expert. If you go to court, a judge determines which method is most credible.