Dividing a family-owned business during a New Jersey divorce

On Behalf of | Mar 19, 2020 | Divorce |

When a husband-and-wife team operates a family-owned business together, a divorce raises issues. One big question is who will keep the business running after the couple splits. 

Under New Jersey’s equitable distribution rules, all assets and properties acquired during a marriage generally belong to both spouses. However, allowing a family court judge to determine how to split up the business or any of its proceeds may not result in a reasonable outcome. 

Following equitable distribution 

When a couple cannot decide on how to split their property, a judge divides everything by what he or she sees as fair. An individual may not have the hoped-for ownership rights to a business unless there is already another form of arrangement, such as a legal partnership. 

If the two spouses are ready to shut down the business along with their marriage, selling it and then evenly dividing the proceeds may seem fair and workable. As reported by Forbes magazine, this option may allow individuals to retire or start a new business after finalizing a divorce. 

Running a business alone 

Leaving the fate of a company up to the judge’s decision may affect the business’s employees, customers and vendors. If the departing spouse’s contributions to the business had a significant impact on its operations, the spouse remaining with the company may end up managing a compromised business on his or her own. Its success may then depend upon additional training, support or an experienced replacement. 

As part of the divorce proceedings, a judge may order the spouse who remains operating the company to buy out the spouse who walks away from it. The judge’s sense of fairness may also require the remaining spouse to make financial support payments from the business’s future income to the spouse who decides to leave it behind. 

Dividing marital assets and property 

Pre-divorce discussions and negotiations between two spouses who acted as former business partners may result in more mutually agreeable settlements. Without each individual’s input, however, the division of property rests on a judge’s decision, and the outcome may not always appear reasonable to both parties.