Divorce and Business Ownership in New York: Valuation, Division, and Protection
If you or your spouse own a business, your divorce just became significantly more complex. In New York, a business acquired or grown during marriage is marital property subject to equitable distribution. The central questions are: what is the business worth, and how do you divide it without destroying it? This guide walks through valuation methods, division strategies, and how to protect a business you built.
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Talk to AI AdvisorIs the Business Marital Property?
Not every business is subject to division. The classification depends on when and how the business was acquired.
Started during the marriage
A business created during the marriage is marital property subject to equitable distribution. The court considers both spouses' contributions, including homemaking and childcare.
Owned before the marriage
The pre-marital value is typically separate property. However, any increase in value during the marriage — especially if driven by marital effort or marital funds — is often marital property.
Inherited business
An inherited business is usually separate property. But if marital funds or effort were used to grow it, or if it was commingled with marital assets, part or all of the growth may become marital.
Passive vs. active appreciation
Active appreciation (growth from the owner-spouse's effort) is marital property in New York. Passive appreciation (market forces, inflation) may remain separate — but proving the distinction requires expert analysis.
Business Valuation Methods
Business valuation is usually the most contested issue. The method chosen can swing the value by hundreds of thousands or millions of dollars.
Income approach (Discounted Cash Flow)
Projects the business's future earnings and discounts them to present value. Best for profitable, established businesses. Highly sensitive to assumptions about growth rates and discount rates.
Market approach (Comparable Sales)
Compares the business to similar businesses that have recently sold. Most reliable when good comparable data exists. Common for franchise businesses, medical practices, and retail operations.
Asset approach (Net Asset Value)
Adds up the fair market value of all business assets and subtracts liabilities. Best for asset-heavy businesses (real estate holding companies, manufacturing) or businesses being liquidated.
Hybrid approach
Most valuators use a weighted combination of methods, adjusting based on the specific business type, industry, and available data. A single-method valuation is often incomplete.
The Goodwill Question
Goodwill — the intangible value above the business's tangible assets — is often the most valuable and most disputed component.
Enterprise goodwill (usually divisible)
Value attributable to the business itself: brand name, location, trained workforce, systems, customer lists, and reputation. This exists independently of the owner and is marital property in most states.
Personal goodwill (often not divisible)
Value tied to the owner's personal reputation, skills, and relationships. In many states, personal goodwill is NOT marital property because it cannot be transferred or sold. New York's treatment of personal goodwill depends on case law — consult a local attorney.
Why it matters
In a professional practice (doctor, lawyer, consultant), personal goodwill can represent the majority of the business's value. Whether it is divisible can change the outcome by hundreds of thousands of dollars.
Options for Dividing the Business
Buyout by the owner-spouse
The most common approach. The owner-spouse pays the other spouse their share of the business value, either as a lump sum or in structured payments over time. The business continues operating.
Sell the business and split proceeds
Provides a clean break but may not be practical if the business is not easily sold, or if selling would destroy value. Capital gains taxes will apply to the sale.
Offset with other assets
The non-owner spouse receives other marital assets (the house, retirement accounts, investments) of equal value instead of a cash buyout. Avoids disrupting the business entirely.
Co-ownership after divorce
Extremely rare and usually inadvisable. Requires a detailed operating agreement, clear roles, and an exceptional co-parenting/co-working relationship. Most attorneys strongly discourage this.
Protecting Your Business
- ✓Prenuptial or postnuptial agreement: the single most effective protection, designating the business as separate property and defining what happens in divorce
- ✓Keep business and personal finances completely separate — never commingle business revenue with personal or joint accounts
- ✓Pay yourself a fair market salary — artificially low salary increases business value (which is divisible); artificially high salary invites income challenges
- ✓Document your spouse's involvement (or lack thereof) in the business with contemporaneous records
- ✓If your spouse works in the business, establish clear employment records, job descriptions, and market-rate compensation
- ✓Maintain clean, auditable financial records — sloppy books invite forensic investigation and adverse inferences
- ✓Consider a buy-sell agreement with partners that addresses what happens in divorce
- ✓Hire your own business valuator — never agree to a single joint expert when millions are at stake
Every situation is different
Business ownership makes divorce high-stakes. Tell our AI advisor about your business structure, and we will help you understand what to expect in New York.
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Legal Disclaimer: This article covers New York divorce law for general informational purposes only and does not constitute legal advice. Laws change frequently. Always consult a licensed New York family law attorney for advice specific to your situation.