Dividing a Family Business in a Divorce
There are several options for dividing a family business in a divorce, but certain determinations must be made first, namely the type of property the business is considered and the net value of that business.
Businesses started during a marriage are considered marital property. In New Jersey, such businesses can be divided like all other marital assets according to the state’s equitable distribution laws. On the other hand, businesses started before the marriage may be considered separate property and may be excluded from equitable distribution; however, any appreciation of such businesses directly attributed to the efforts or contributions of the spouse who married into the business is subject to the state’s equitable distribution laws. Equitable distribution laws allow for the fair, but not necessarily equal, distribution of marital assets. New Jersey considers one spouse’s efforts to take care of the family or support the household while the other spouse grows the business as contributing to the appreciation of that business. This concept is known as the “marital enterprise.”
Once the type of property is determined, separate or marital, the next step is to establish the business’ total value together with the value of the marital portion of the business. New Jersey applies the fair value standard as opposed to the fair market value. The fair value omits discounts for lack of control or marketability.
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