A couple who jointly owns a business in New Jersey can face significant legal complications should they divorce, as a co-owned business likely qualifies as a marital asset subject to equitable division. As such, the couple will need to resolve ownership disputes as part of their divorce proceedings. 

If you’ve found yourself in this situation, turn to the legal team at Bozanian McGregor LLC for help. For years, our firm has guided clients through the complexities of divorce, including those involving shared businesses. Let us protect your rights to the company you’ve worked so hard to build and seek the fair outcome you deserve. Contact us today for an initial case evaluation with a divorce lawyer in Paramus, New Jersey. 

Understanding Joint Business Ownership Arrangements in Divorce

When couples co-own a business, they may operate it as a formal or informal partnership, as members of a limited liability company, or as stockholders in a closely held corporation. Couples may document their respective ownership interests with varying levels of detail. In some cases, all legal documentation may reflect one spouse as the sole owner, even if the couple considered the business a joint endeavor during their marriage. Conversely, a couple may have well-defined ownership interests documented by stock certificates or capitalization tables. 

If a couple who jointly owns a business gets divorced, various legal documents and laws may affect their joint business ownership arrangement. First, without documented ownership shares, co-owning spouses who get divorced in New Jersey may have to divide their business ownership interests equitably based on their respective financial contributions and labor and the family’s circumstances. However, some couples may have addressed their joint business ownership arrangement through a pre/postnuptial agreement, which a court may enforce in a divorce. 

Critical Factors in Dividing a Jointly Owned Business

Deciding how to resolve ownership of a business jointly operated by divorcing spouses will involve consideration of various factors, including:

  • The business valuation: Most critically, dividing a jointly owned business requires understanding its valuation, which can help couples negotiate a buy-out or sale of the business to resolve ownership in their divorce. 
  • The spouses’ respective contributions: Couples should also consider their respective financial and sweat equity contributions to the business. Unfortunately, if couples fail to document their respective ownership percentages, these considerations can lead to intense disputes.
  • The viability of the business: Finally, a divorcing couple should consider whether the business can continue as a going concern after implementing their preferred method of resolving their ownership dispute. For example, suppose one spouse agrees to buy out the other, or the couple agrees to sell the business to a top manager or strategic partner. In that case, will losing one or both spouses at the top of the business hurt employee retention or customer goodwill? 

Options for Resolving Business Ownership Disputes in Divorce

When divorcing spouses must resolve ownership of their jointly-held business, they may pursue various options for resolving those ownership disputes, such as:

  • One spouse buys out the other: A divorcing couple may agree to resolve their ownership dispute by having one spouse who wishes to continue operating the business buy out the other spouse. The couple may need to retain appraisers to value the business and the selling spouse’s share. If the selling spouse does not already have a defined ownership interest through stock or membership interest, the court may need to divide the ownership interest between the spouses equitably. The buying spouse can compensate the selling spouse with cash or their share of other marital assets like real estate or investments. 
  • The spouses sell the business and divide the proceeds: A couple may choose to sell their co-owned business and divide the proceeds per their recorded ownership stakes or the equitable division decided by the parties’ pre/postnuptial or marital settlement agreement or court order. 
  • The spouses continue to co-own the business: Finally, a divorcing couple who maintains an amicable personal or working relationship may choose to continue co-owning and operating the business. 

However, these options may become more complex or impractical due to complicating factors, such as the presence of other partners in the business who may object to options like selling the company. 

Tax Implications for Business Division

Divorcing couples who co-own businesses may face various tax implications when dividing their ownership interests in divorce. For example, when one spouse agrees to buy out the other as part of property division in divorce, the selling spouse may incur various tax obligations, such as income or capital gains taxes. 

The buy-out may have other tax implications for the business, potentially affecting depreciation or carryover of losses. When a divorcing couple agrees to sell the business and split the proceeds, they may incur capital gains liabilities. As a result, spouses who co-own a business should each seek independent legal and tax counsel to understand the financial and tax implications of a proposed method of resolving ownership disputes. 

Strategies for Protecting Your Business Interests

Individuals who co-own a business with their spouse may pursue various legal strategies to protect their business interests. First, couples who jointly own a business may negotiate a pre/postnuptial agreement addressing how the parties will resolve business ownership in a future separation or divorce. If a couple does not have a pre/postnuptial agreement, they may negotiate or attend mediation to arrive at a marital settlement agreement that provides a mutually agreeable resolution to the ownership dispute rather than letting the court resolve the issue. 

During divorce proceedings, a spouse can take various protective measures, such as obtaining copies of financial records and documenting the business’s intellectual property to prevent the other spouse from misappropriating money or assets. Spouses can also take various measures to prevent disruption to business operations during their divorce, such as allowing a trusted manager to handle day-to-day decisions to avoid employee or customer confusion over who controls the business. 

Contact a Divorce Attorney Today

Are you and your spouse going through a divorce with a jointly owned business at stake? If so, contact Bozanian McGregor LLC today for a confidential consultation with a divorce attorney in Paramus, New Jersey. Don’t face the future alone. Instead, let us protect your rights and safeguard your assets.