Many businesses in New York are owned by a small number of co-owners rather than being publicly traded on a stock exchange. During a divorce, any part-owner of one of these types of companies would need to determine the value of their share of that business and what portion of that asset is marital or separate property.
Understanding what happens to a closely held business during divorce in New York is key to protecting what you’ve built and your property rights.
How New York Courts Determine Whether a Business Is Marital Property
The annual divorce rate in New York is 2.4 per 1,000 people, and many New Yorkers each year find themselves navigating the state’s complex property division laws. Before a divorce can be finalized, both spouses must disclose their properties and assets.
Marital property is subject to division under the state’s equitable distribution laws, while separate property is generally not divided. The Levoritz Law Firm represents high-earners going through complex divorces. We understand the unique challenges faced by spouses with large estates.
Whether a closely held business is considered marital property depends on how and when the ownership was acquired and whether marital funds or efforts contributed to the company’s growth, among other factors.
A business that was started during a marriage would generally be considered marital property, while an ownership interest acquired before the marriage may be considered separate property, although any appreciation in value could still become subject to equitable distribution.
Valuing a Closely Held Business During Divorce
New York is home to many closely held businesses, also known as privately held or privately owned businesses. Unlike publicly traded companies, where shareholders own portions of a company, closely held businesses are typically owned by a small number of individuals, which can make the valuation process more complex during a divorce.
The courts may require a close examination of financial statements, ownership agreements, tax returns, business assets, and projected earnings when determining the value of an ownership interest.
Specific assets can include:
- Cash and business bank accounts
- Accounts receivable
- Inventory and supplies
- Real estate
- Machines, office furniture, equipment
- Intellectual property
- The company’s reputation
- Current client lists
- Business-owned assets
These cases often benefit from support from consultants who can determine the value of an ownership interest. These individuals bring many years of first-hand experience to these matters and can work in close collaboration with your lawyer.
Strategies for Protecting a Closely Held Business During Divorce
There are more than 183,000 small businesses in New York, and for many owners, a closely held company represents years of hard work and a substantial portion of their overall wealth. Maintaining clear records can help you show whether the company was owned before marriage or acquired afterward.
An accurate business valuation is critical for establishing the company’s true value, so you do not forfeit more than your marital assets are worth. Unreasonable demands by your spouse can be addressed by your attorney before any final deals are signed.
Hire a Divorce Lawyer
Small businesses make up 98% of companies in New York, and many are closely held companies owned by a small number of individuals. Whether your business is based in Chelsea, Midtown Manhattan, SoHo, or elsewhere in New York, protecting what you’ve built begins when you hire a divorce lawyer. Without strong support from a New York divorce attorney, your divorce case could lead to unfavorable outcomes that jeopardize your property rights.
The Levoritz Law Firm brings a client-focused approach to managing complex divorces, including those involving closely held businesses. When you work with our firm, you gain representation from a respected New York law firm that has represented high-earning clients since 2005.
FAQs
Is a Closely Held Business Subject to Division in a New York Divorce?
A closely held business may be subject to division in a New York divorce when a portion or all of an ownership interest is considered marital property. The courts may examine when the ownership interest was acquired, whether marital funds contributed to the business, and whether either spouse’s efforts helped increase the value of a company during the marriage. Disagreements can lead to complications and setbacks, making legal support crucial for these types of cases.
What Is a Mistake to Avoid When Protecting Assets in a Closely Held Business?
One common mistake to avoid when protecting assets in a closely held business is failing to look closely for separate property. Similarly, failures to document separate property that you already know about could lead to an outcome in your divorce that doesn’t fully protect your property rights. Divorces can be complex and tiring ordeals, but your long-term financial future can depend on your lawyer’s ability to safeguard your interests.
What Types of Assets Are Generally Considered Separate Property in New York?
Separate property generally includes assets acquired before marriage, inheritances, gifts made specifically to one spouse, and certain personal injury awards. In some situations, proceeds from separate property may also remain separate if they have not been commingled with marital assets. The spouse claiming an asset is separate property generally has the burden of proving that claim.
Does Forming an LLC Protect a Business From Division in a New York Divorce?
Forming a limited liability company (LLC) does not automatically protect a business from division during a divorce. An LLC can help business owners avoid certain personal liabilities and can provide tax and management benefits. It does not shield a spouse from New York’s equitable distribution laws during a divorce. If an ownership interest in the LLC is considered marital property, the court may determine that all or part of its value is subject to division.
Contact A New York Divorce Attorney
The divorce attorneys at the Levoritz Law Firm provide unparalleled guidance for high-earners going through complex divorces. We understand the complexities of business ownership, including those of privately owned companies, and can provide you with the focused support and attention that your case deserves.
Our commitment to integrity, responsive client service, and dedicated advocacy guides every case we handle. Contact our office today to schedule your consultation, so we can find the right strategy for protecting what you’ve built.
