Managing LLCs, Business Types and Divorce-Related Issues with your Skilled NJ Family Law Firm
Serving Clients in Lakewood, Asbury Park, Point Pleasant, and Ocean, and Monmouth County towns
Divorcing is traumatic, splitting one household into two, but when it comes time to divide the assets, you probably resent the thought of dividing a business you built over years of hard work, time, and money. Giving your spouse half a company they never contributed to seems unfair. But in New Jersey, the laws of equitable distribution mean you must share equally with your spouse the total value of all assets, including a business. However, that does not mean you have to give the spouse half of your business. Depending on the situation, you may not be required to give them a portion of your business at all.
At Bronzino Law Firm, LLC our desire is to provide you with the valuable information and guidance you need so that you are able to make well-informed decisions, many of which can impact you for the rest of your life. Our team of family law and divorce attorneys serves clients in Lacey, Jackson, Asbury Park, Mantoloking, Brielle, Brick, and throughout Monmouth and Ocean County, NJ. We have the answers to your questions, and we want to share them with you.
How much of the company belongs to your spouse depends on many factors.
For example, it matters when you started your business. If the business came into existence after marriage, you must decide how to divide the asset’s value equitably. However, if you started your business before the wedding, your spouse’s interest in the business arose after you married. So, when you divorce, the value of the business before marriage and after is critical. Your spouse may be entitled to a part of the increase in the business value after marriage. And if you inherited your business from a relative, your business may be considered your separate property, in which case you may not have to divide the business if you kept the asset separate.
However, if your spouse is interested in your business, establishing that value depends on several factors. The first consideration is whether your spouse contributed to the business in some way as a partner, shareholder, employee, or independent contractor. The second notable factor is the type of business, a sole proprietorship, partnership, S Corporation, LLC, or C Corporation, for example. And lastly, you want to evaluate the company or the marital interest in the shares of a business. The measure of your business’s value is its fair value. An expert on business valuations can calculate the fair value based on the business’s marketability should it be sold and your interest in the business as an owner, part owner, or shareholder. For example, a minority shareholder has less control over the business, and thus, less interest value.
Understanding Fair Value in Ocean County
Fair value is not only the value of the business if it were up for sale or the value of its assets if you had to replace them. In other words, it is not fair market value. Fair value in the context of divorce considers the type of business, the industry in which it operates, stock value, finances, earning potential, dividend payouts, goodwill, and market price based on comparable businesses. But again, fair value correlates to the type of business, whether the couple or one spouse owns a single business, multiple small businesses, franchise businesses, or investment holdings. And with a C corporation, the value of shares is relevant, as is the corporation’s ability to pay out dividends. The more shares a shareholder owns, the higher the dividends or payouts from corporate profits. You can find declarations of corporate profits and losses in the corporate tax returns for reference. But evaluating corporate holdings is complicated so that you will need the help of an attorney, business evaluator, and accountant.
New Jersey Businesses and Corporations Types handle tax returns differently
Unlike a C corporation that files separate tax returns from the shareholders’ tax returns, an S corporation does not file separate tax returns from its owners. The tax structure is more like a partnership, in which each partner pays individual taxes from the partnership income. So, a judge may look to the S corporate profits and losses and attribute them to the respective owner or owners. And LLC’s are like a hybrid of corporations and partnerships. They operate as partnerships with members who manage the daily operations and others who merely invest in the business. They may file taxes like a corporation, meaning separately from the personal tax returns of its members, or like a partnership. LLC’s can be rather complicated as the members can register them in different states (with their laws about taxation and valuation) and own other business entities.
Like some LLCs, partnerships share business expenses and profits in New Jersey
Each member pays taxes their share of the profits and losses of the entire partnership, typically according to an agreement. The partnership agreement usually determines how to allocate debts, assets, and liabilities, along with the operating details. It often includes what should occur if the partnership terminates or one partner dies, retires, or divorces, for example, whether a surviving spouse or ex-spouse may maintain an interest in the partnership. The partnership agreement also identifies the type of partnership, which may affect the value of the partnership interest.
For example, in a general partnership, all parties share the partnership’s profits, losses, and liabilities, whereas, in a limited liability partnership, the partners do not share liability. Each partner is responsible for their actions. And a limited partnership contains both operating partners and silent partners who are investors with no responsibility for the day-to-day operations. They are liable for partnership debts only to the extent of their investment. Thus, a partner’s interest value differs depending on the type of partnership. A silent partner who shares in the profits without liability for partnership lawsuits or debts may be more valuable than a partner on the hook for obligations and liabilities.
Overall, it matters whether you have a partnership interest, shareholdings in a C or S corporation, an LLC, or a sole proprietorship of one or multiple businesses when it comes to evaluating your business. How much you must pay in taxes (double taxation in a C corporation) and your liability for whatever can go wrong in a business affects your business interest value. In addition, how much your spouse should get from your business or business interest may be proportional to what they contributed to the business to make it valuable. The more they contributed, the more likely a court would recognize their equity in the company. Logically, the opposite would be true if the contribution was minimal. And while you might be unable to prevent your spouse from receiving an interest or the comparable value of their interest in your business, you can argue for a larger share.
An Ocean County family law attorney can help you minimize the value your spouse receives from your business in the divorce.
For example, you could show proof from a professional business valuation specialist that the fair value is lower than what your spouse contends the company is worth. You could also use the value your spouse is due from the business to offset any alimony you may have to pay. Since business evaluations and asset division is complicated in divorce, you want the benefit of a family law attorney’s experience with these matters.
To take action on your case, speak with a Divorce Lawyer Today.
We can help you hire the experts to evaluate your business and present to the court the interest that they should assign to you and your spouse. Though it seems to be a complex process with a variety of details, remember that you do not have to know it all, we have the experience of a law firm that has handled numerous divorces involving businesses of various types over the years.
If you need legal counsel and assistance in Ocean and Monmouth Counties in towns like Toms River, Manchester, Point Pleasant, Stafford, Barnegat, or Lakewood, our staff is prepared to take your case and provide you with the guidance and support to move forward.
Call the Bronzino Law Firm, we will work diligently and deftly to keep your decision-making needs at the forefront when pursuing the best options for your business and your family amidst a divorce. Feel free to call us at (732) 812 3103 for a free initial consultation.