Divorce is no doubt an emotionally challenging time. More often than not, divorce leads to uncertainty and forces spouses to make difficult decisions. For business owners, that uncertainty can extend beyond personal matters and into questions about ownership, control, and the future of the company they have worked hard to build. Divorce can have a direct impact on a business’s value, operations, and long-term stability—often in ways that are not immediately obvious. Knowing how business assets are treated, and what steps you can be taken to protect them, is critical to protecting what you have built and preparing for what comes next.
What Happens If My Assets are Unprotected?
To best understand the effect of protecting your assets, it is important to first address what happens to unprotected assets.
New Jersey law treats a marriage as an economic partnership and if a couple was to divorce, assets are divided between the parties by equitable distribution. When subject to equitable distribution, a court divides the parties’ assets and according to various factors—like marriage length, contributions, age to name a few. Equitable distribution applies to all assets acquired by either party during the marriage. Property—businesses, real estate, or stocks—is subject to equitable distribution if the Court determines that the property is part of the marital estate.
Businesses started during the marriage will have their value considered as an asset to be divided between the parties. The spouse who operated the business will typically remain owner. If their former spouse had interest in the business, the spouse who owns the business will hold the obligation to buy out their former spouse. Businesses created before the marriage may not be considered part of the marital estate, but the increase in value of the business during the marriage may be considered a marital estate. If the increase in value of a pre-marital business is considered as part of the marital estate, then it may be subject to equitable distribution.
How Can I Protect My Business?
Whether through agreements or business decisions, there are many ways to protect your business assets pre- and post-marriage.
- Prenuptial Agreements: A prenuptial agreement is a contract between spouses, before marriage, that defines property, assets, and alimony in the case of divorce. A soon-to-be spouse that owns, or intends to own, a business during their marriage can have prenuptial agreements to exclude the value of a pre-marital business, and its appreciation, from the marital estate. Each party must knowingly and voluntarily enter into a pre-nuptial agreement for the contract to be enforceable in New Jersey.
- Postnuptial Agreements: If parties are already married, they can still enter into an agreement to establish the distribution of their assets. Similar to a prenuptial agreement, postnuptial agreements is a contract between spouses, however it is made after the couple’s marriage. A postnuptial agreement may define property, assets, and alimony in the case of divorce.
- Forming a Trust: Like other assets, a business can be placed, in part or whole, into a trust. When a business is placed in trust, a sperate entity (the trust) owns the business and its assets are not considered marital property.
- Forming Separate Business Entity: Another way to have your business owned by a separate entity is by forming one through business structures like LLCs or corporations.
- Business Decisions: Distancing your spouse from your business, paying yourself a competitive salary from the business, avoiding the use of marital funds to pay business expenses, or negotiating during equitable distribution to maintain full ownership are all ways to protect your business without any other protections in place. However, an agreement, trust, or separate business entity are more reliable in keeping your business assets fully secure in a divorce.
Where Do I Go to Protect My Business?
Protecting your business during a divorce can feel overwhelming, especially during an already difficult time. Having the right guidance can make a meaningful difference. Working with attorneys who understand both the personal and financial stakes—like our attorneys at Giro & Associates, LLC—can help business owners protect what they have built.
If you are ready to take the next step in protecting your business, call our River Edge, New Jersey Law Office at 201-502-7834, or send us a message with a brief description of your situation, and we will get back to you right away.