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Is your soon-to-be ex-spouse entitled to a share of your company?

Divorce can be especially complex for New York business owners. In our state, marital property is divided equitably between the divorcing spouses. Equitable distribution does not guarantee an equal split, and a common question for business owners is whether their company assets, such as stocks, will be subject to property division.

Consider this scenario: a soon-to-be divorced husband has received from his father a percentage of stock in the family business. The husband may wonder if his wife is entitled to the value of some portion of that stock in the divorce settlement. The answer depends on a variety of factors.

First, since the stock was given to the husband by his father, the stock can be regarded separate property, as opposed to marital property. Gifts to only one spouse from another person can be kept out of property division in a divorce, but the property owner may have to supply evidence that separates the asset from marital property.

Second, the wife in this case may be entitled to a share of the stock's appreciative value; that is, if the value has actively appreciated. For example, if the husband's actions caused the value of the stock to appreciate, then the appreciation would be regarded as active appreciation.

Passive appreciation occurs when the value of the stock increases for reasons beyond the owner's control. For example, inflation can cause a passive appreciation in value. In this case, if the husband's stock passively appreciated, then the wife would not necessarily be entitled to a share of the appreciated value.

Addressing all of these matters can be overwhelming for a divorcing spouse, but a divorce attorney with experience in property division and business law may be able to help limit the stress of an already difficult life change. To protect their financial interests now and in the future, New York residents should cover their legal bases before finalizing a divorce settlement.

Source: Rhino Times, "Divorce Doesn't Mean Division of Family Business," Carolyn Woodruff, Feb. 6, 2014

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