Equitable Distribution and Business Interests

Equitable Distribution and Business Interests by Sandy Balick

{3:30 minutes to read} More on New York’s approach to equitable distribution of marital assets—this time pertaining to business interests.

Assuming a business, including a professional practice, is established in the course of a marriage, it is likely a marital asset subject to equitable distribution. The division of these business interests may be the subject of distributive awards—payments or distribution of some other value in lieu of actual equity in the business under consideration.

Distributive awards avoid the necessity to break-up a business. In addition, these get around the obvious issue presented by a soon-to-be-ex who might otherwise end up with an ownership interest in a law firm or a business partnership, where the participation of the former spouse is prohibited (in the case of a law firm), impractical or outright unwise (as when the ex has no knowledge of or experience with the business).

There are two critical aspects to business interests in the equitable distribution process:

1. A formal valuation may be necessary to prove the value of the business in question.

2. A court must then decide what portion of the value is subject to distribution.

The first thing to know about valuation is that it is an expensive process. It’s easy to spend $5,000-10,000 valuing even a small business. These amounts are easily dwarfed by the expense of valuing a larger business with diverse assets.

No amount of expenditure can obscure the fact that the valuation process combines elements of art and science. Courts are often challenged to make distribution decisions in the face of sharply conflicting “expert” value opinions.

Once a court establishes value, they decide what portion of this value the non-titled spouse will receive. Whereas many assets are frequently divided roughly in half (especially in the case of longer marriages), this is not necessarily the case with business interests where 20% to 35% distributions are closer to the norm. These awards are not arbitrary but are guided by some 14 statutory factors, including a catch-all provision that enables a court to take into account almost any relevant circumstance established by the evidence and testimony to support its award.

It’s possible that an award may not be appropriate in the case of a small business, where its asset is principally the owning spouse’s reputation (goodwill) and/or where other assets are limited. This does not render its value irrelevant, however. A court may factor in the difficulty of establishing value for such a business when arriving at its overall determination (i.e., adjust the award to the respective parties so as to address the relative significance of the business asset to the economic partnership that constitutes a marriage).

My next installment will address the manner in which business valuation may efficiently be dealt with in mediation.

Sanford (Sandy) Balick, Attorney & Mediator, NY Sandy Balick signature
Sanford E. Balick, Esq.
Founder & Principal Mediator
Consensus Point Mediation, LLC.

Phone: (646) 340-3434
Email: ConsensusPointLLC@gmail.com
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