Business and Divorce

[palmiragirl]

What is the name of your state (only U.S. law)? NJ

Hi,

Looks like me and my husband are heading for a divorce. We have been married for 2 years. I have a question regarding business. He owns a business that he started long before we were legally married, but already living together. In the last few years business significantly grew. I have my own job and am employed full time.

At the time of the divorce am I entitled to any portion of his business? Can he "transfer" the business into someone's name or add another owner to prevent me from getting any of the business profits/what its worth?

The estimated sale price for this business at this moment is about 500K.

Thanks for any help.

 

[Ohiogal]

What is the name of your state (only U.S. law)? NJ

Hi,

Looks like me and my husband are heading for a divorce. We have been married for 2 years. I have a question regarding business. He owns a business that he started long before we were legally married, but already living together. In the last few years business significantly grew. I have my own job and am employed full time.

At the time of the divorce am I entitled to any portion of his business? Can he "transfer" the business into someone's name or add another owner to prevent me from getting any of the business profits/what its worth?

The estimated sale price for this business at this moment is about 500K.

Thanks for any help.

What type of business? How much has the business grown during the two years you have been married? Why do you believe you deserve part of the business? Does he deserve part of YOUR income for the two years you worked?

 

[palmiragirl]

What type of business? How much has the business grown during the two years you have been married? Why do you believe you deserve part of the business? Does he deserve part of YOUR income for the two years you worked?

The business is a chain of stores (dezigner) in a few states. It has grown a lot. I do not have numbers at hand, as i was never involved in any finances and never had any access to any financial information, but my estimate would be 250-300K during the last two years.I supported him emotionally and i was there for him and our child, when he was busy - i was the one doing all the marital responsibilities. My icome was spent on bills and supporting our family - just like his. I though that the business is an asset of the marriage, just like everything else accumulated during the marriage. Or am I wrong here?

Thank you for replying.

 

[nextwife]

The business was an asset he BROUGHT to the marriage. And that probably was growing and continued to grow just fine regardless of whether you were around or not. Odds are, the business would be in the same state now even if he hadn't married you.

 

[mistoffolees]

The business was an asset he BROUGHT to the marriage. And that probably was growing and continued to grow just fine regardless of whether you were around or not. Odds are, the business would be in the same state now even if he hadn't married you.

It might even be in a better state since he'd have had more time to spend on the business if he weren't a newlywed.

 

[palmiragirl]

Ok, thanks for the responce. First of all we have been married for two years, this is not nearly "newlyweds". Secondly....he asked me to cosign for the loan for business with him a year ago. Which I did. We BOTH went to the bank and both signed on 100K loan for this said business - which was invested in the business and spent already. So, according to you, he gets to keep the business, and I am STILL liable for the said loan together with him, altough i have no interest in the busines??? Something is not right here.
Secondly....I bough the house before marriage, (about 5 years ago), i put a large downpayment by myself, and now he wants half of the house. So is it OK that he asking for half of MY assets beeing liable for $0.00 and i cant ask for half of his business, being liable for 50K ?

 

[mistoffolees]

Ok, thanks for the responce. First of all we have been married for two years, this is not nearly "newlyweds". Secondly....he asked me to cosign for the loan for business with him a year ago. Which I did. We BOTH went to the bank and both signed on 100K loan for this said business - which was invested in the business and spent already. So, according to you, he gets to keep the business, and I am STILL liable for the said loan together with him, altough i have no interest in the busines??? Something is not right here.

No one said that. You never mentioned the loan before. If you don't give complete information, how do you expect to get useful advice?

He is probably going to have to refinance to pay off the loan.

Secondly....I bough the house before marriage, (about 5 years ago), i put a large downpayment by myself, and now he wants half of the house. So is it OK that he asking for half of MY assets beeing liable for $0.00 and i cant ask for half of his business, being liable for 50K ?

No one said that, either. Maybe you should calm down, provide relevant information, and then you'll get useful answers.

He is entitled to half of the marital equity in the house. That is the marital equity at the time of divorce minus your equity at the time you got married. He is not entitled to half the house and no one suggested that he was.

 

[LdiJ]

No one said that. You never mentioned the loan before. If you don't give complete information, how do you expect to get useful advice?

He is probably going to have to refinance to pay off the loan.




No one said that, either. Maybe you should calm down, provide relevant information, and then you'll get useful answers.

He is entitled to half of the marital equity in the house. That is the marital equity at the time of divorce minus your equity at the time you got married. He is not entitled to half the house and no one suggested that he was.

However she is also entitled to 1/2 of the marital equity in the business, and everyone pretty much told her that she was greedy for thinking so.

OP, insist that he refinance that loan into his own name only...or insist on a share of the business commeasurate with your risk.

 

[Ohiogal]

However she is also entitled to 1/2 of the marital equity in the business, and everyone pretty much told her that she was greedy for thinking so.

OP, insist that he refinance that loan into his own name only...or insist on a share of the business commeasurate with your risk.

That depends on what the EQUITY in the business is. You mean PROFITS? I never said she was not entitled to nothing. I asked her what she thought she should get.

 

[LdiJ]

That depends on what the EQUITY in the business is. You mean PROFITS? I never said she was not entitled to nothing. I asked her what she thought she should get.

In this case its not as simple as "equity" or "profits". She has a "basis" in the business because she is on the hook for 100k.

If I were going into this one as an accountant/advisor I would be looking at the total "basis" of the business and what that 100k represented as a result of that...particularly if the owner/spouse of the business could not have received that 100k without the other spouse cosigning.

Maybe he had a solid little business going earning him a modest/liveable profit, but that 100k investment significantly expanded the business and turned it into much more.

The equity might not be significantly more due to the debt, but the profits may be significantly more and the long term prospects for the business might be significantly more.

Therefore I might advise that the wife keep the risk and insist on a share of the business in exchange for keeping that risk...with a share of the business meaning a share in the profits...an OWNERSHIP share, not a property settlement buy out or a forced refinance.

Quite frankly, if the wife had talked to me before cosigning the loan, I would have advised her not to sign unless the business was restructured into an LLC or S-corp with her being either a member or shareholder. However, that's obvously a moot point now.

Anyway...the point I am making is that this is not a simple "its his business and you shouldn't be asking for anything because your marriage was short term". She has a real basis/stake in the business due to that 100k investment that happened in part, due to her credit. In fact, I suspect that her credit probably had more to do with it than his did. In fact, it wouldn't surprise me if HER house was collateral for that loan, even if she doesn't/didn't realize it. (ie didn't read the paperwork)

 

[mistoffolees]

However she is also entitled to 1/2 of the marital equity in the business, and everyone pretty much told her that she was greedy for thinking so.

I can't speak for 'everyone'. I never told her she was greedy.

She is, indeed, due 1/2 of all marital assets and 1/2 of all marital debts. If the VALUE of the business (not its profits, although the two are related) has grown, she should get 1/2 of the gain.

Frankly, most homes are not worth much (if any) more than they were 2 years ago. Many businesses are also flat (although some have obviously grown).

I'm willing to bet that this is one of those divorces where they'll spend far more in lawyer's fees than the value of what they're fighting over.

 

[LdiJ]

I can't speak for 'everyone'. I never told her she was greedy.

She is, indeed, due 1/2 of all marital assets and 1/2 of all marital debts. If the VALUE of the business (not its profits, although the two are related) has grown, she should get 1/2 of the gain.

Frankly, most homes are not worth much (if any) more than they were 2 years ago. Many businesses are also flat (although some have obviously grown).

I'm willing to bet that this is one of those divorces where they'll spend far more in lawyer's fees than the value of what they're fighting over.

Could be...but she is still on the hook for 100k for his business, so its a battle that MUST be fought....and I can just about guarantee that her house is collateral for that loan, so she cannot afford to roll over and play dead.

 

[mistoffolees]

In this case its not as simple as "equity" or "profits". She has a "basis" in the business because she is on the hook for 100k.

If I were going into this one as an accountant/advisor I would be looking at the total "basis" of the business and what that 100k represented as a result of that...particularly if the owner/spouse of the business could not have received that 100k without the other spouse cosigning.

Maybe he had a solid little business going earning him a modest/liveable profit, but that 100k investment significantly expanded the business and turned it into much more.

Yes, good point, although it's not even as clear cut as that - since they BOTH signed the $100 K note.

One might argue that the correct division is for him to pay off the note and then pay her cash for 50% of the equity accrued during the marriage. This would basically be the same thing as on a home. If she brought a home into the marriage and they both signed a home equity line, the most reasonable solution might be to pay off the loan and give him 50% of the marital equity.

There are certainly other plausible scenarios, as well, and it's complicated enough that OP needs a good attorney.

 

[LdiJ]

Yes, good point, although it's not even as clear cut as that - since they BOTH signed the $100 K note.

One might argue that the correct division is for him to pay off the note and then pay her cash for 50% of the equity accrued during the marriage. This would basically be the same thing as on a home. If she brought a home into the marriage and they both signed a home equity line, the most reasonable solution might be to pay off the loan and give him 50% of the marital equity.

There are certainly other plausible scenarios, as well, and it's complicated enough that OP needs a good attorney.

Agreed...this one isn't simple...which was my entire point.

Just today I dealt with major tax issues on a somewhat similar situation. My point is that company ownership when there are risk factors involved is a complex issue and needs to be dealt with as such.

And...I will repeat, whether the OP realizes it or not, I can just about guarantee that her home is collateral for that loan.

 

[palmiragirl]

Thank you very much for your responces. As of right now i havent consulted with an attorney yet, altough i will. I just wait and want to see if he is going to propose or offer something. As of right now we are just not talking at all.
Yes, my house was a collateral for the loan, and yes i have a great credit. He has a good credit as well, but he has soooo much premarital debt - both business and personal, that he needed a cosigner and when the times were good - i didnt even think or doubt my actions. For me it was obvious that we are in this marriage, business or what have you - together. As i said earlier the business is worth about 500k, or at least i was told so. It is an LLC with him being a sole owner and member. However, we have always filed taxes separate and his income on his income taxes was his business income during the year - which was about 700K a year. It shows as his PERSONAL income.
I would not mind to excange with him - he gets to keep the business totally, refinances the loan off my name, and leaves the house to me completely. However I do not know if it would be a fair distibution of marital assets. Or if i should go for half the profits/marital equity in the business and buy him out on the house. There is about 50K equity in the house as I have always paid extra towards the principal. So thus far we have: 100K loan in both names for business; 200K or so marital equity in the business; 50K or so marital equity in the home. I do not know how we are going to split all this and what is the best course of action.
Another question: we have two children. One that he adpoted from my previous marriage and a 1 year old. I will most likely end up with physical custody, as he is just never home and works too much and travels all the time. I know child support is based on income, but due to this business his income (personal income) is not correct. How do I estimate the amount of child support?

Thanks again for all that responded.