How can NY business owners protect business interests during divorce?

Divorce, the legal separation from a spouse, results in the distribution of all marital assets. Savings accounts, property, debts – anything the court determines classifies as marital interests is subject to division during divorce. This can be difficult for business owners. Depending on when the business was started or even when it grew, the court may consider the business marital property.

This piece will delve into how business owners can protect their business interests during divorce. In order to determine if a business owner needs additional action to protect business interests during the divorce, one of the main questions to answer is whether or not the business interests qualifies as a marital asset.

Question #1: Is the business interest a marital asset?

In New York, state law defines marital property as property acquired by one or both spouses during the marriage. Examples can include cars, airplanes, furniture, bank accounts, artwork, retirement accounts, business interests and gifts.

There are some exceptions, most notably separate property. Separate property includes that purchased prior to the marriage, through inheritance, or property designated as separate through a written agreement. The owner of separate property must proactively work to keep that property separate. For example, separate property funds must not be comingled in joint accounts or the spouse could make a successful argument the use of a joint account transformed the property into a marital asset.

It is important to note that a non-owning spouse could make an argument that they made contributions that resulted in the growth of the business. If successful, the non-owning spouse could then claim the growth of the business as marital property.

Question #2: How can business owners protect business interests?

A premarital or post marital agreement can provide some protection. It is wise for both parties to retain legal counsel to better ensure the likelihood the agreement would survive a legal battle.

There are options to protect one’s business even if the business qualifies as a marital property. New York is an equitable property state. This means the law requires a fair, but not necessarily even, split of property. As a result, business owners could negotiate a trade of another asset in exchange for full ownership in business interests. This will require a business valuation to better ensure reasonable negotiations. An attorney experienced in New York divorce law can further discuss this and other options to mitigate the risk of a divorce negatively impacting one’s business interests.