Is A Business Considered a Marital Asset in A Divorce In New York State?
When determining if a business is a marital asset in New York it must be determined if the business was acquired or accrued value during the time of the marriage or not. If the answer is yes then it’s a divisible asset. If the answer is no, then other factors may need to come into play, but as a general proposition the answer is yes.
Does It Matter Whether My Spouse’s Name Is on My Business or Not When It Comes to Divorce?
For the purposes of the divorce case, the only analysis of whether it matters if my spouses name is on the business or not when it comes to divorce, is whether it was acquired or accrued value via active efforts during the marriage. Equitable distribution law was changed in New York in 1980 to make it clear that title in and of itself does not matter. The law rejigged the definition of distribution of assets to make it the primary focus on marital assets vs. “separate property assets”. Therefore, title – in and of itself – does not come into the mix. Oftentimes, you have one spouse or the other that owns a business, sometimes both parties own their own businesses, and oftentimes the business is titled with just one spouse versus the other. One needs to analyze whether the business was started during the marriage; even if it was started premarital there can be active appreciation of the business to the efforts of the titled spouse.
How Might My Business Partners Be Affected by My Divorce?
When looking at if your business partners will be affected by your divorce, it shouldn’t result in an effect on the business in and of itself – other than the fact that at the end of the divorce case the person owning or partially owning the business may owe money to the ex-wife or ex-husband who is the non-titled spouse (& to that degree they may need to dip into business funds to be able to pay out that non titled spouse). Only in a very indirect manner would it have an effect on a partially owned business, because it’s not as though one would transfer the title of the business to the non-titled spouse – that usually does not happen. Usually, just the business itself is valued; a price tag is put on the ownership portion of the business and then from there the court will decide what percentage the non-titled spouse should get.
Could I Have Protected My Business or Can I Protect It in A Prenuptial or Post Nuptial Agreement?
It is possible that you could have protected your business in a prenuptial or post nuptial agreement. If you have a business prior to the marriage and you want to protect that business it makes sense to do a prenuptial agreement, because a prenuptial agreement can specifically address that any active appreciation of that business is one’s own separate property no matter what efforts the non-titled spouse put in. If the prenuptial agreement is drafted properly then the non-titled spouse should either have their own attorney, be informed of their right to have an attorney, or a right to consult an attorney on the prenuptial and if there is a vast income disparity between the titled spouse and the non-titled spouse then they should be informed of their ability to request that the “monied fiancé” contribute towards the fees that their attorney would otherwise charge. If all of that is stated in the agreement and the non-titled spouse is informed, then the general rule is that one can claim active appreciation. If they are waiving that then it would be what the law calls a “knowing waiver.”
When I do my prenuptial agreements, I go above and beyond to make sure that the non-titled spouse is aware of all of that. I never want a court to scrutinize my prenuptial agreements and say the non-titled spouse waived his or her share of the active appreciation but when they waived it, they were not aware they were entitled to claim it in the first place (and therefore it was not a “knowing waiver”). If one otherwise carves out that waiver, then the value of the business that accrued during the marriage is arguably still up for grabs. I don’t want to take that chance on behalf of the titled spouse or titled fiancé, which is why my prenups go beyond what the law requires in a prenuptial agreement and really makes clear what the non-titled spouse is giving up.
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