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The Impact of Divorce on Business Owners

In New York, if you or your spouse own a business (either in whole or in part), then that business is subject to distribution during the divorce process. For purposes of this blog, a “business” can be a corporation, partnership, a sole proprietorship or any entity that is operated and earns income. In analyzing the impact of divorce on a business, there are several issues to consider:

Is it a “Separate Property” or “Marital Property”: As with all assets, the Court will first want to know if the business is one of the spouse’s separate property or is the married couple’s marital property. If the business was created prior to the marriage, then most likely it will be considered that spouse’s “separate property”. If the business was opened during the marriage, it almost certainly will be considered “marital property.”

Even if the business was one spouse separate property, if during the marriage, the  other spouse contributed marital funds to expand the business or to keep the business afloat, then part of the business may be considered marital property.

Valuation of the Business: If the business is strictly one spouse’s separate property, then it may not have to be valued. However, if part of all of the business is marital property, it is very likely that the Court will want a valuation of the business conducted. That valuation will be done by a neutral third party.

What to Do With the Business: If the business is marital property of part of it is marital property, then it is an asset that is subject to New York’s Equitable Division laws. Most courts will want the business to continue in operation. They will encourage the parties to reach a resolution where one party keeps the business and the other party’s share of the business is “bought out”. In some rare situations, the Court will allow both parties to retain ownership of the business. If it is not possible for one or both parties to retain ownership of the business, then the Court could order the business to be sold for its Fair Market Value and the funds to then be distributed to each spouse.

Disruption of Daily Operations: When both divorcing couples are involved in the running of the business, then there is a great possibility that during the divorce process, there will be disruption of the daily operations of the business. Even in situations when only spouse is involved in the daily operations of the business, a divorce can become a serious disruption to the running of the business.

Real-life examples:

Eric D. was a client of the Badanes Law Office. Eric D. owned a marketing company which he organized and started prior to his divorce. Eric D. was the only owner of this business, which was very successful and had about a dozen employees. He created the marketing company prior to his marriage and his wife had very little to do with the business. As it was his separate property, Eric D. was able to keep the entire business and there was no need to value the business.

In another case, the Badanes Law Office represented Lisa B.  Lisa B. and her husband owned a small retail store and they opened that store during the marriage. Both Lisa B. and her husband were very involved in the day-to-day operation of the retail store. During the divorce process, Lisa B. and her husband both agreed to sell the retail store to a neutral third-party. Lisa B. with the help of the Badanes Law Office decided that selling the retail store would result in the most funds for her and also would resolve this issue.

If you are thinking of getting a divorce in New York and you own a business, then you need an attorney that has the experience to help you. David Badanes, Esq.  and the Badanes Law Office has the experience of representing small business owners and can help you as well.

Contact David Badanes, Esq. and The Badanes Law Office, P.C. at  631-239-1702 or email at david@dbnylaw.com. The Badanes Law Office represents clients in Suffolk County, Nassau County, and New York City. Our offices are located in Northport and in Uniondale.

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