Know the Specifics of Self-Employment in a NJ Divorce Setting
Being Self-Employed Comes with a Unique Set of Considerations if You and Your Spouse are Divorcing in Freehold, Toms River, Manasquan, Howell, and other Monmouth and Ocean County Areas
The COVID-19 pandemic significantly impacted the global economy and the employment landscape. While it led to widespread job losses and economic hardships for many, it also prompted some people to explore self-employment opportunities. The pandemic caused businesses to shut down, scale back operations, or implement layoffs to cope with the economic downturn. Many people lost their jobs, and as traditional employment opportunities became scarce, individuals sought alternative ways to generate income. Starting their businesses or offering freelance services became viable options for some.
To mitigate the spread of the virus, remote work became the norm for numerous industries. This shift to remote work highlighted the possibility of working independently and provided individuals with flexibility in terms of time and location. It also accelerated the adoption of digital technologies, making it easier for people to start online businesses, offer remote services, or work as freelancers. In response to the economic impact of the pandemic, the government introduced financial aid programs and grants to support small businesses and self-employed individuals. These initiatives provided financial incentives and resources for those considering self-employment, making it a more feasible option.
Self-employment refers to operating a personal enterprise or engaging in work independently without being employed by someone else. It involves complete responsibility for one’s job, including sourcing clients or customers, controlling finances, and delivering products/services. Self-employment manifests in several forms, from freelancing and consulting to owning small businesses and working as independent contractors.
Self-Employment and the Gig Economy in New Jersey
During times of crisis, some individuals display resilience, creativity, and adaptability. The challenges posed by the pandemic motivated people to think outside the box and find innovative ways to earn a living. This entrepreneurial spirit, coupled with the need for financial stability, prompted many to pursue self-employment to survive and potentially thrive in the face of adversity. This is referred to as the “gig economy.” The gig economy refers to a labor market characterized by the prevalence of short-term, flexible, and often freelance or temporary work arrangements. In a gig economy, individuals typically work on a per-project basis or as independent contractors, taking up “gigs” or assignments as they become available.
Workers in the gig economy are often self-employed or work as freelancers. They have more control over their schedules and can choose the projects they want to take on. Many find opportunities through online platforms that connect them with clients or customers seeking specific services. These platforms act as intermediaries, facilitating the matchmaking between service providers and consumers.
Gig work typically involves short-term engagements where workers often operate task-by-task, completing one job and moving on to the next. This arrangement offers flexibility but may lack the stability and benefits associated with traditional employment. The gig economy allows individuals to leverage their skills and expertise in different domains, catering to the needs of a diverse clientele. Examples of popular gig economy platforms include Uber, Lyft, Airbnb, Upwork, and TaskRabbit.
The downside to this kind of work is that it is demand-based, and income fluctuates based on the changes in the market. While it offers individuals flexibility and entrepreneurial opportunities, it raises concerns about job security, income stability, and access to benefits typically associated with traditional employment.
Self-Employment Complications in a NJ Divorce Scenario
Determining its value can be complicated if you own a business as a self-employed individual. The court must establish the business’s fair market value to determine how it should be divided between you and your spouse. Evaluating a business’s worth often involves assessing its assets, liabilities, income, expenses, and potential for future growth.
Self-employed individuals often have fluctuating income streams, making it challenging to understand their financial situation accurately. Unlike salaried employees with consistent pay stubs, self-employed individuals may have varying income levels from year to year. This variability can complicate the assessment of spousal support (alimony) and child support payments and the division of assets and debts.
In some cases, self-employed individuals may attempt to hide or understate their income or assets to avoid a fair distribution during divorce proceedings. It can be more challenging to detect hidden assets or unreported income if the self-employed individual controls their financial records or if their business finances are intertwined with personal finances.
Self-employment means having sole ownership or a significant stake in a business which can complicate property distribution if the business is considered marital property subject to division. Deciding how to divide or compensate the non-self-employed spouse for their share of the business can be complex, especially if both parties have contributed to its growth and success. In addition, self-employed individuals may have more complex tax situations compared to salaried employees. Tax returns, deductions, and business expenses can impact the determination of income available for distribution and affect the overall financial settlement in a divorce.
Given the complexities associated with self-employment, it’s advisable to seek the assistance of divorce attorneys, forensic accountants, or business valuation experts to ensure a fair and accurate assessment of assets, income, and liabilities during property distribution in a divorce involving self-employment.
How is a Self-Employed Person’s Income Calculated for the Purposes of Divorce in NJ?
Determining income for a self-employed individual can be more complex compared to individuals who receive regular salaries or wages. The most common source of income information for self-employed individuals is their tax returns. Self-employed individuals typically file Schedule C (Form 1040) to report their business income and expenses. The income reported on the tax returns can serve as a starting point for determining income, although it may require further analysis and adjustments.
Self-employed individuals should maintain detailed business income and expense records. Profit and loss statements, or income statements, summarize revenue, expenses, and net income for a specific period. The individual or their accountant can prepare these statements and help determine the average income over a particular timeframe. Reviewing bank statements can provide insights into the cash flow of a self-employed individual’s business. By examining deposits and withdrawals, you can get a sense of the income generated by the business.
Invoices and contracts can provide evidence of income earned from specific clients or projects. These documents can help establish the revenue generated during a particular period and validate the self-employed individual’s claims about their income. Additionally, sales records, receipts, and invoices provide more financial information.
Running Your Own Business? Understand the Concept of Business Owner Divorce
A “business owner divorce” occurs when divorcing spouses either co-own an enterprise or when one of them is solely responsible for one that affects their separation’s legal matters. In such cases, the separation process necessitates asset division protocols encompassing shared assets like businesses and other related financial and legal considerations. Couples who own businesses jointly must figure out ways of either splitting equity equitably between them or continuing to collaborate professionally in case either of them retains ownership rights over most shares of stock. When the business is owned by one spouse alone, the division of the asset is not as cut-and-dried as one might imagine. Determining ownership can be challenging if both partners were involved in the business’s day-to-day workings or invested money as individuals.
Effects of Self-Employed Divorce on Support Agreements in New Jersey
Support agreements, such as spousal support (alimony) and child support, in a self-employment divorce are typically handled in a manner similar to divorces involving other types of employment. However, due to the unique financial circumstances of self-employment, there may be additional complexities to consider, such as income, business expenses, profitability, and potential for the future.
Contact our Self-Employed Divorce Lawyers at Bronzino Law Firm to Discuss Your Case in Ocean County NJ
If you or your spouse is employed, this kind of divorce is one of the most complicated to complete. Both parties should consult with experienced attorneys with experience handling complex financial matters in matrimonial law. The Bronzino Law Firm offers experienced divorce attorneys who can provide guidance and negotiate on behalf of our clients to reach a fair divorce agreement based on the unique circumstances of self-employment. We work closely with forensic accountants and other specialists prepared to analyze the financial standing of your or your spouse’s freelance business to determine a settlement and when necessary, use the evidence in financial records to prove our clients’ cases in divorce litigation. in Rumson, Middletown, Point Pleasant, Eatontown, Colts Neck, Mantoloking, Howell, Barnegat, Long Branch, Sea Bright, and towns in Ocean and Monmouth County.
Call our office today at (732) 812-3102 or visit our contact section to request a free consultation with a divorce attorney on our team. We are committed to offering you the best possible service during this challenging time.