New Jersey is an equitable distribution state. This means, in plain terms, that the assets and liabilities acquired during a marriage are distributed fairly regardless of whose name they are in. One such asset is what we call a closely held business. A closely held business is owned by an individual or small number of owners, usually in the same family.
Lavene v. Lavene 148 N.J. Super. 267 (1977), appears to be the first published (or binding) after the divorce law changed in 1971 to include the equitable distribution provision, that clarifies what needs to be done to value closely held businesses. The road map is clear and still relevant today.
The court noted that “Where there are marital assets the trial judge must determine which are distributable, what the value of the distributable assets is, and how, under all the circumstances, they are to be equitably distributed between the parties.” Valuing close corporations is not a simple task. The court stated that you can’t just use the “book value, which fails to deal with the realities of the good will concept, which does not consider investment value of a business in terms of actual profit, and which does not deal with the question of discounting the value of a minority interest.”
In a case with a closely held business the litigants have the obligation to provide the proofs that let the court make the determinations. In order to do that the court identified several things that are necessary:
- Both parties must fully cooperate;
- The parties should secure the assistance of appropriate experts to appraise business interests;
- Notify the court of what additional discovery may be needed.
Under the rules of court, a judge has the power to appoint her own forensic expert. An experienced attorney will help present the case to the court that is needed to compel the appointment of an expert if the parties do not agree to a joint expert or if there are insufficient funds for each to hire their own expert.
Ultimately if the parties cannot reach an agreement and the case is tried, the trial judge will need to determine the value of the business, the value of the share that is owned by the party in the case, and the value to be paid to the none titled spouse.
If you own a business or you are married to a small business owner and contemplating divorce, contact the experienced divorce attorneys at Baker Legal Group or schedule an initial consultation. Our skilled and knowledgeable attorneys can discuss with you the best strategy to obtain a fair valuation of the business and discuss your options.