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 Whippany, New Jersey | New York, New York
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So you own a business and you think like a business person, and you are getting divorced.

Keep that “Bottom Line” mentality about your case, because it can be a bit of a maze of legal and accounting concepts.

You have a business that started, “was acquired,” during the course of the marriage.

Did you put all the “effort and money in” while your spouse stayed at home, taking care of the home and kids? Or did your spouse come to the office, generate clients, do the bookkeeping, or run the cash register?

If your spouse never stepped foot in the business but cared for the children and home, the court looks at the business just like other assets acquired during the marriage. It is joint property subject to Equitable Distribution.  Your spouse took care of the home and family, so you could focus on the business.

Generally speaking however, a spouse that never participated in the business receives less than a 50/50 share of your interest, whereas one that participated significantly usually receives 50/50 or close to it.

When valuing the business, a forensic accountant can use various approaches. “Capitalization” is one method, where the income of the business is determined and then multiplied by a “Cap Rate”. It is a blend of adding, different risk factors, and subtracting growth.

A high Cap Rate in simplistic terms means that the business is higher risk, lower value. A low Cap Rate is lower risk, higher value.

Although we are dealing with accountants who are generally quite objective, these Cap Rates can be very subjective, leaving room for argument.

Market approach is another method comparing similar businesses sold from data bases.

Another element of calculation accountants use in the valuation context is reasonable compensation ie. if you are a dentist and you got a job at another office, what would your reasonable compensation be? Let’s use $150,000. But at your own practice your personal gross is $250,000. Even though it is just you, there is value: 100K extra a year from owning the business. This is value that is distributable in a divorce.

New Jersey is different than a lot of states in that it uses what is called “fair value,” not fair market value as the standard of value. To give a simple example; you have a minority interest in a business with your brother. You own 40%, and he owns 60%; your vote doesn’t count as much as his. Should the value of your stock be less than his in the same company, because he can push you out? Obviously if you are the minority shareholder you want to be fairly compensated, without being forced to take less because you have less power. This is how it works in divorce court in New Jersey to protect the spouse with less power.

The court however is also a court of equity; if you are a business owner and you can’t sell your business, or you have a financial reason for the business to have limited value, this must be considered.

Family court judges are not accountants. They also have wide discretion.

Forensic accountants also have elements of subjectivity and discretion when preparing their valuations of businesses.

If you have a business that might be subject to Equitable Distribution, make sure your attorney understands business valuation principles so she/he can question/dispute or support the validity of the conclusion of the expert.

You and your lawyer must be able to properly analyze the elements and factors that go into your business valuation and work diligently to come to a fair and equitable resolution of your divorce case, so you can move forward positively. Most businesses are kept by the business owner with either a payout or credit against other assets to the other spouse.

Tanya Helfand is a certified matrimonial attorney with 23 years of experience. She is licensed in New York and New Jersey. She herself has owned retail businesses as well as the law practice and is very sensitive and knowledgeable about this subject when representing either the business owner or non-owner spouse.

 

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  • Whippany Office
    575 Route 10 East
    Suite 1
    Whippany, New Jersey 07981
    Phone: 973-428-0800
    Fax: 973-428-0830
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    420 Lexington Ave.
    New York, New York 10170
    Phone: 646-213-9053
Testimonials
  • "Without Tanya and her time, the really unpleasant experience of getting divorced would have been even worse. They were able to settle the matter very quickly and helped me fit this into my tight schedule allowing me to leave to move abroad for my dissertation research on time without having to delay the trip because of the divorce. They also did all of it within my very tight budget. Thank you so much for your help and dedication to my legal matter!"  - AG

  • "Tanya and her Associates are outstanding! What I admire most about Tanya is her knowledge of the law with her keen negotiation skills to foster mediation. Her strategies efficiently resolve conflict leading to the resolution of cases. She and her team have an outstanding work ethic, know what data are needed, and get the job done. It is a pleasure to work with such wonderful professionals."  - Tara, Whippany

  • "I found Ms. Helfand's knowledge and tenacity most reassuring during the ordeal of my divorce. She was steadfast in her guidance and was very effective in her negotiations on my behalf. I would recommend her without a second thought. "  -Jonathan

  • "Ms. Helfand was very professional and helpful with our bankruptcy case. Her advice was very useful and helped us make the proper decisions for our situation. In addition, she was very supportive during a very difficult time for us. Finally, she set very specific fee expectations and there were no surprises when it was completed. I would use her services again and would recommend her, without question."

  • "She is Incredible, very quick responding to the other party. Very professional and courteous. I highly recommend her. She has a great passion and love for every single case."

  • "Tanya and her team were very professional handling my divorce proceedings. She was very proactive in making the other attorney finally get the process moving forward. I would recommend her to anyone looking for legal services. "  -Scott

  • "Ms. Helfand strategized & processed, both, my Divorce & Chapter 13 Bankruptcy. As both cases were emotionally and legally challenging, Ms. Helfand proved to be an empowering Mentor along the path to clarity for which I am truly grateful. I highly recommend her legal expertise to anyone who is seeking a confident, savvy & caring attorney to become at peace with self and any legal matters."  -Vas

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