New York, NY family law attorney Lisa Zeiderman talks about how the court determines the distribution of business assets in a divorce. Determining the distribution of a business asset during divorce proceedings involves two key components. The first is assessing the actual value of the business, and the second is determining the percentage that the non-titled spouse will receive from that distribution. In New York, it is relatively uncommon for business assets to be split evenly at 50/50; typically, the distribution falls within a range of 20% to 40%. In certain situations, a non-titled spouse who has made significant contributions to the business may be awarded as much as 45%, or in rare cases, 50%. However, an even split is generally not anticipated.

Additionally, it is important to understand that the non-titled spouse typically does not gain direct ownership of the business. Instead, they receive a lump-sum payout, which may be disbursed at the time of settlement or following a trial. This payout can also be structured over time, potentially including interest.

Valuing a business can be a complex process that often requires the expertise of a forensic accounting firm or an accounting firm with a specialization in business valuations. Various documents must be submitted, regardless of whether the client owns the business or is seeking a share. Key documents may include general ledgers, financial statements, credit card statements, and bank account records, which may need to be produced in their native formats for ease of analysis. Furthermore, partners may be required to give depositions as part of the valuation process.

The role of the business valuator is to ascertain what the business’s value would be in a transaction between two willing buyers and sellers. This process often includes normalizing certain figures, such as business expenses. For instance, if personal expenses are being paid through the business, these would not be considered standard business expenses and would thus be deducted. Other aspects, like rental payments to family members or above-market salaries, may also necessitate normalization.

Once the value of the business has been established, the next step is to evaluate the contributions of the non-titled spouse. These contributions can be either direct or indirect. For example, the non-titled spouse may have managed household responsibilities while the titled spouse dedicated themselves to building the business. Contributions might include overseeing family duties, socializing with clients, or working directly within the business—all of which factor into the non-titled spouse’s claim.

In New York, it is uncommon for a non-titled spouse to retain ownership in the business after divorce. This is largely due to the preference for keeping the parties as separate as possible, particularly when the non-titled spouse may not have been involved in the daily operations of the business and may lack a comprehensive understanding of its workings. Therefore, the emphasis is on determining a fair percentage of the business’s value that the non-titled spouse will receive. Generally, this percentage ranges from 20% to 40%, with 45% being a possibility if the non-titled spouse has played a considerable role in the business or if the marriage has been of long duration. Ultimately, the non-titled spouse will receive a payout, while the titled spouse will continue to operate the business.