When valuing a business in a New York divorce, the value of the business is determined with an appraisal, by a business appraiser, using the accepted valuation methodologies. In a court divorce, both parties will often hire their own appraisal experts, with each side presenting their expert’s opinion for a judge to evaluate. In a negotiated divorce or separation, we’ll often have one neutral expert who works with everyone to find the most accurate valuation.
Having a value of the business as of the time of separation or divorce is not the whole picture, however. In a divorce, martial assets are divided, with separate property remaining separate. So, we need to determine how much of the value of the business was created during the marriage. If the business was created during the marriage using marital funds, then the business would be considered entirely marital. If it was created before the marriage, then the value of the business as of the date of marriage can provide a baseline for determining how much the business grew during the marriage. Another consideration might be the use of separate property toward the acquisition of the business.
Another consideration is the nature of the increase in value of the business. For example, if the business was created before the marriage and was worth $1 million as of the date of the marriage and $3 million as of the divorce, then the increase during the marriage is $2 million. We then look at whether the appreciation or increase in value of the business was active or passive. Active appreciation means that efforts of one or both spouses lead to an increase in value, perhaps by working in the business. Passive appreciation might be where the titled spouse is a silent partner in a business managed by others, so the appreciation was not due to efforts during the marriage. The general rule is that passive appreciation of a preexisting asset is not divided, but active appreciation is.
This is a general overview of the topic. Please reach out to discuss the specific circumstances of the business in your marriage.
