When you own a business, divorce raises complex financial questions that extend beyond your home or bank accounts. New Jersey law requires an “equitable distribution” of assets, meaning that you must divide all property acquired during the marriage “fairly.”
In high net worth cases, owners often face “double counting,” which occurs when the same income stream is used twice: once to calculate the business’s value for a buyout and again to determine monthly alimony obligations.
The legal precedent: Steneken v. Steneken
It is a common misconception that “double dipping” is prohibited. In the landmark case Steneken v. Steneken, the New Jersey Supreme Court clarified that courts may count the same income for both business valuation and alimony. The court’s priority is to ensure the supported spouse receives alimony based on “actual” income, even if that income is also used to set the company’s value.
While this may seem unfair to a business owner, the law treats asset division and spousal support as separate matters. However, applying this rule is rarely straightforward, and your company’s specific financial facts will dictate how a judge balances these two areas.
Valuation challenges and reasonable compensation
To ensure the final numbers are as fair as possible, your attorney must dive deep into “reasonable compensation.” If a valuation “normalizes” your salary to a lower market rate to increase the company’s value, you must address any gap that results during support negotiations.
To manage these calculations, financial professionals typically analyze:
- The difference between your actual take-home pay and a standard market-rate salary.
- The distinction between actual business profits and your personal earnings.
- How future earning capacity affects the enterprise’s current value.
Forensic accounting helps clarify exactly which dollars are generated by the business entity versus your personal efforts. Understanding these distinctions is the first step in building a strategy that protects your company’s health while meeting your legal obligations.
Protect your financial integrity
The intersection of matrimonial law and business valuation requires sophisticated legal guidance during a divorce. Because New Jersey case law is technical, you need a skilled lawyer who understands how to present your financial data in the most favorable light.
Securing your financial legacy depends on precise calculations and a clear legal strategy to assess your obligations accurately without compromising your business.