Do I have to pay my spouse 50% of my Business?

Do I have to pay my spouse 50% of my business?

This article has to do with updates as to New York Divorce Law and equitable Distribution of business interests.

I will try to point out trends that I see in the case law in the various judicial districts and hope that it will provide guidance as to your expectations when you are in litigation over business interests in a divorce action.

In 2021, in the Second department case of Davenport v. Davenport, 2021 WL 1112911 (2d Dep’t 2021) the Wife was only awarded 10%  because of the short duration of the marriage, and because her contributions toward the business was very small.

Compare this to the First Department case of DeNiro v. DeNiro, 2020 WL 3848156 (1st Dep’t 2020) where the Wife got nothing because the court concluded the husband’s business was a gift. In that case there were extenuating circumstances involving the proofs posited at trial. So if you are in the First Department you should be aware of this recent decision.

Similarly, in the case of Cotton v. Roedelbronn, 170 A.D.3d 595 (1st Dep’t 2019) the court only awarded 10% of husband’s business interests in one business, but 40% of the value of two other businesses he owned,  40% of his interests in two other businesses valued at approximately $3.8 million combined.  In that case the Husband made a showing that the value of the businesses were made prior to marriage and that wife the wife actually had a negative effect on value. 

As you can see by now, the Court still has vast discretion to award values of businesses to spouses and the Courts are very fact driven. 

That said, there is a trend toward awarding the nontitled spouse with more than previously awarded in earlier decisions I have read.  Bear in mind that the old rules are still relevant-the Court will look at the direct contributions to the [husband’s] business as well as her indirect contributions as a homemaker and primary caregiver, and the length of the marriage.

In Hofmann v. Hofmann, 173 A.D.3d 531 (1st Dep’t 2019) the Wife was awarded 50% of husband’s interest in certain shares and investments he acquired during his employment, but this was a long marriage of 16 years.

Most of the guiding law on equitable distribution of businesses is coming out of the Second Department in New York.  For instance, in the 2018 case of Sheehan v. Sheehan, 161 A.D.3d 912 (2d Dep’t 2018) the Court awarded the untitled spouse with 26% of the appreciated value of the husband’s gas station by relying on the Wife’s expert’s valuation. There, please note that the Wife worked part time as a bookkeeper so she made direct contributions to the business as well and secured a valuation.

The take away here is that if you want an interest in the martial business make sure you get an expert valuation because without a valuation you have no claim. You may ask the court to appoint an independent forensic accountant to conduct the valuation or seek your own, but get a valuation.  Also see the case of Lestz v. Lestz, 155 A.D.3d 857 (2d Dep’t 2017) where the Wife got zero of the husband’s dental practice because she failed to get a baseline valuation of the business. 

In another case in the Second Department  the Wife t 33 percent of the business value because she was an active participant in the family business. See Westbrook v. Westbrook, 164 A.D.3d 939 (2d Dep’t 2018) 3 999998.05912/125621509v.1  

You should also take notice of a Third Department case which shows a trend of splitting the business values equally between the parties. So if you are upstate this will be a very interesting case to familiarize yourself with .  In the case of DeSouza v. DeSouza, 163 A.D.3d 1185 (3d Dep’t 2018) The Court awarded the husband a separate property credit but also awarded the wife with a 50% of husband’s ownership interest in business where, the husband bought the business with his own separate property during the marriage.  This demonstrates that the Court can divide businesses in any way that makes sense to them on those particular facts and that there is just no “one size fits all” guideline or solution which makes it very hard for lawyers to counsel their client as to expectations.

In the case of Nadasi v. Nadel-Nadasi, 153 A.D.3d 1346 (2d Dep’t 2017) the Wife got a 25% interest in the husband’s interest in his brokerage business only because of her indirect contributions in the home which allowed the husband to build his business. Note again that this was a long-term marriage.

In the case of Repetti v. Repetti, 147 A.D.3d 1094 (2d Dep’t 2017) the Judge awarded a 30% share in the husband’s companies. The award was only 30% because there the wife had made only minimal direct and indirect contributions.

You can see a pattern developing here in the Second Department because I see a lot of cases where the Wife is getting a 30% interest in the husband’s business (and visa versa). In the case of Katz v. Katz, 153 A.D.3d 912 (2d Dep’t 2017) there the court awarding the wife a 30% interest of an accounting firm, which considered wife’s direct and indirect participation in the business.  

Similarly, in the case of D.D. v. A.D., 56 Misc. 3d 1201(A), 63 N.Y.S.3d 304 (Sup. Ct. Richmond Cty. 2017) the Wife got a 30% interest because the Husband admitted his Wife was his “partner” . She got a reduced interest, and for at least one reason,  because her direct contribution to the business was reduced over time when the firm hired more employees.

In another Second Department case of Perdios v. Perdios, 135 A.D.3d 840 (2d Dep’t 2016) the Wife was awarded a 20% interest in the husband’s business because her contributions were minimal.  Compare this to the case of Benabu v. Rienzo, 104 A.D.3d 714 (2d Dep’t 2013) where the Wife received 33% of the appreciation in the business based on her indirect contributions as a housewife.  So there is no real pattern there, once again.

It all has to do with the particular facts of each case and how the Court decides to weight them.

However, a clear pattern is that the spouse will get a larger percentage if she was a homemaker and worked in the business as well.

Then you have cases of wrongful conduct. In those cases the Court seem to penalize the business owner for bad financial conduct in a case. In the case of Wesche v. Wesche, 77 A.D.3d 921 (2d Dep’t 2010) the Court awarded the Wife 52% of the business because the husband allegedly tried to conceal the income.

The length of the marriage also comes into play as noted earlier. In P.D. v. L.D., 28 Misc. 3d 1232(A) (Sup. Ct. Westchester Co. 2010) the wife got 30% of the value of husband’s hair salon but the husband was given a separate property credit for monies he used in starting up the business.

In conclusion, except for the third department case, and except for case involving fault,  businesses do not seem to be divided equally between the parties unless both parties contributed equally to the business

I hope this was helpful information.

This article is not legal advise and is to be used for informational purposes only.

By your Manhattan Divorce Lawyer

Lisa Beth Older

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