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divorce is highly stressful and perhaps even more so for people who are in a business this is a highly complex area of law and naturally business owners will worry about their business family law partner Sarah arkinson is here to explain some of this to us let's start with the basics what happens to a business during a divorce well they're factored in in many different ways depending on the nature of the business sole traders are very easy where the person themselves is running a business under their own name because there's no separate entity to value those with interest in partnerships or companies are slightly more complex in some circumstances purely the income that's generated by the business is shared on divorce and it would be unfair on the business owner to count a capital value as well as the income stream it generates because if you sold the business you wouldn't then have the income stream or vice-versa so then you'd only share the income long-term with the spouse on divorce if you're not going to do that and you do need to be able to share the actual value of the business interest then it will have to be formally valued sometimes to determine what that is if it can't be agreed and then share the capital value between them okay let's look at that more closely if it's necessary how our business is valued during a divorce the first step would be for the business owner to produce as part of their financial disclosure in the divorce process evaluation from the company accountants because they know the business better than anyone and the best place to do that sometimes there's a level of distrust between the spouses that means the court will appoint an independent expert accountant to confirm the value of the business so it depends how that process pans out really and what is involved if an independent valuation is deemed necessary by the court well we would select a single joint expert they're called in the process and the solicitors for both parties would work together to prepare quite detailed instructions to the account and gather all the necessary documents they need to review those questions raised within the instructions would be to confirm the open market value of the business interest ie what would a person on the street pay for that business interest secondly we look at the tax consequences of selling that interest because the court always works with net figures so after tax what's the business interest worth thirdly it will look at the liquidity of the business interest ie could the company release money to share the value of the shareholding with the spouse and if so how quickly and in what method most of the tax consequences and lastly they'll look at the sustainable income of the business owner so as part of divorce sharing future income is sometimes done and therefore we need to know what sustainably can be earned from the business going forward and what would you do with that valuation well the court has various powers available to it and its primary aim on divorce is to separate the couple financially so they each have their own assets independent of the other and there's no future financial ties between them so the obvious way of doing it would be for the court to order a lump sum payment by the person with the greater share of the assets including the business to their spouse to share the overall pot between them if that's not viable and it's not in every circumstance then it's open to the court to transfer ownership of shares in a company which can be quite scary for the business owner and maybe their colleagues that can be shared in that way so that the spouse becomes a co-owner of the business for the future and shares the benefit all the failure of the business as they would have if they'd stayed married and in very rare circumstances the court could even sell a business interest to release cash to share between them what would happen if first spouse already owned a business before their relationship had happened well the way the case law has developed the court now categorizes assets as non matrimonial property or matrimonial property and that matrimonial element is what's effectively built up marriage partnership and that's definitely the element that would be shareable on divorce so the court will try and identify how much the business was worth when it was brought into the marriage it's very common these days with second marriages that people have built up wealth in this way so that's why the case law is developing in that way I'm out off to do that just by taking the broad brush approach because no one can look back to 1988 and determine the value of the company now and back then it's very difficult so they'll just apportion it over the period of time the business has been running normally there are various complexities to that analysis but the broad brush answer is they will ring-fence an element of the pre acquired value of the business so we've learnt from Sarah that divorces that involve a business can be very complex and many people find it necessary to seek out specialist legal advice you
Thanks for your comment Wendell Wapp, have a nice day.
- Wayne Bryington, Staff Member
hello and welcome to the 48th episode of business litigation TV the Internet's most passionate show about business litigation I'm your host Jesse David Eisenberg and I am a New York City business litigation attorney today's topic I'm going to talk about in LLC now especially in New York City there are a lot of small mom-and-pop businesses and most those businesses or lease a fair portion are formed as a limited liability company LLC now LLC's they're pretty easy to get started they don't even require that you have what's called an operating agreement and most people just do a standard operating agreement when they have one and this poses a problem why does it suppose a problem because an LLC standard operating agreement does not adequately describe what to do when one member is being treated badly or one member needs to be ousted in fact the general rule in New York is that a member of an LLC cannot be oust it and well I'll get to this in a bit but I was going to talk about what to do or how to dissolve a corporation well we'll get that dude so first this don't know what to do if there's a member who is not cooperative or just unhappy and wants out in certain ways I find there's about four standard things that can be done number one depending on the level of the business how well it's working the dissatisfied member can just walk away that's option one another option is that all of the members of LLC say hey this isn't working let's move on and they dissolve the LLC the next option one of the members or a few members decide to buy out the dissatisfied or non cooperative member and then the fourth option is an outside person wants into the business and they buy out the non-cooperative or the de satisfied member so that's that's the easy ways that doesn't require any courts probably so far as a lawyer if you're buying them out but it's a much easier option and it's a lot cleaner now what happens when a member when the one know those four options are available what do you do well a member can decide to start a dissolution action saying I wanted to solve the corporation the court should do it here's why problems with that is if the corporation is making money and it's doing its stated purpose like let's say an LLC is purchasing it's job is to purchase real estate and they're still purchasing real estate you know they have decided to start buying gummy bears or something then the courts are not going to dissolve the corporation now hold on sarcoid right okay well as I said before you can't ask a bad number or a non-cooperative or a dissatisfied member you can't do it so what do you do you can't go to court to oust someone you can't dissolve the business if the business is running well what are you left with all right so what you're left with is to to kind of similar options when you bring a case for what's called a breach of fiduciary duty because what usually happens in a case where someone's dissatisfied they're not getting paid and they've been moved to the side they're being ignored right so you bring into a breach of fiduciary duty whoever's managing the LLC has a fiduciary duty to the other members to make sure they are receiving their profits option one option two you bring a derivative suit if they're mismanaging the funds to South America bring a derivative suit on behalf of the LLC saying you're miss managing the funds and I'm taking you to court so it's kind of a rundown on what happens as I like to call it when an LLC needs a divorce all right so there's options for you when you kill when you can find an exit strategy with the other members and there are a few but not great options in New York when you can't when you need to go to court okay if you have any questions something I can address in your specific circumstance please feel free to email me je s SE @j de la WNYC all right guys as always I appreciate you watching and until next time take care
Thanks Kirk your participation is very much appreciated
- Wayne Bryington
About the author
I've studied legal education at Oklahoma Wesleyan University in Bartlesville and I am an expert in japanese history. I usually feel nerdy. My previous job was hospital nurse I held this position for 19 years, I love talking about car tuning and baseball. Huge fan of Demi Lovato I practice sledding and collect plants.
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