Brooklyn's Progress
August/September 2007

BY SHERRI DONOVAN

Marriage is an economic partnership, and sometimes these partnerships do not end well. In New York, businesses jointly owned by a couple going through divorce are divided in accordance to equitable distribution. Under this doctrine courts will look at what each partner has individually contributed to the business, rather than automatically splitting the business in half. In most cases, however, the division ends up being 50-50, especially when both spouses have contributed.

To make a fair and equitable decision, courts require both spouses to fully disclose their financial circumstances. This includes an exchange by each spouse of a sworn Statement of Net Worth, which is accompanied by a current and representative paycheck stub, along with a recently filed tax return. 

Who Gets What?
When considering distribution of a business, the date of the acquisition of the business and the source of funds are two important factors to keep in mind.  Aside from these two factors equitable distribution involves a three-step process:  classification of a marital business, evaluation, and distribution. 

First a marital business must be identified.  A marital business can be defined as one started during the marriage or before the marriage with both names in the title. The business must then undergo a valuation by a forensic accountant, who places a dollar amount on everything that was jointly owned in regards to the business.  There are three accepted methods for the valuation of a business:  asset valuation, capitalization of earnings, and excess earnings. After these two steps are completed, each side has the relevant facts to begin negotiations over distribution.

Looking at Options
There are a few options that a couple has in regards to the division of their joint business. One spouse can buy out the other for sole ownership of the business or can offer to trade other assets in return for sole ownership. Another option is that the business can be dissolved, whereby neither party would receive ownership. Also, the business can be sold and the profits split between the couple.

In very rare cases, the couple can continue to jointly own the business. Here, the couple would have a business contract between them as opposed to a marital one. In distributing the assets, courts will keep in mind issues such as tax consequences.

Sherri Donovan, a top attorney, author, and speaker is the divorce clinic specialist for the Service Fund of the National Organization for Women (NOW), in New York City. A cum laude graduate of New York Law School, she lectures at divorce clinics from the United Nations to the Learning Alliance.  She appears on national radio as a legal expert and TV including Geraldo, Court TV, and Montel Williams.  For more information, visit http://www.sherridonovan.com/. Her book entitled “Hit Him Where it Hurts – The Take no Prisoners Guide to Divorce,” can be purchased at your local Barnes & Noble, SherriDonovan.com, or Amazon.com.