Family Law Frequently Asked Questions
- For nearly 20 years, I have owned a business which provides consulting services. Although my business has been lucrative, I don’t think anyone would buy it because without me, there is no business. Under these circumstances, would my wife have an equitable distribution interest in my business in the event of a divorce?
- What are the Child Support Guidelines? Are they meant to cover all expenses related to children?
- I own a business with approximately 25 employees. Although my wife has never worked in my business or assisted me in the operation of my business in any way, she is claiming that if we get divorced, I will have to pay her for her interest in the business. Is she correct?
- Inherited Money From My Parents during our Marriage, Do I Need to Share That With My Soon-to-be Ex?
- Should I Move Out of the House, Will it Affect the Results of My Divorce?
- Can Divorced Parents be Ordered to Pay for Their Children’s College Education?
For nearly 20 years, I have owned a business which provides consulting services. Although my business has been lucrative, I don’t think anyone would buy it because without me, there is no business. Under these circumstances, would my wife have an equitable distribution interest in my business in the event of a divorce?
Your question implicates one of the more complex areas of family law in New Jersey. To begin, a basic understanding of business “value” in the context of a divorce is necessary. Many are surprised to learn that the goal of a business valuation in the context of a divorce is not to determine the “fair market value” of the business. Rather, it is “fair value” which is relevant.
“Fair market value” can be defined as the amount at which property would be sold between a willing buyer and a willing seller, each having reasonable knowledge of the relevant facts, and neither being under any compulsion to buy or sell. The “fair market value” method permits discounting of value for lack of marketability (inability to attract potential buyers) and lack of control (inability to dictate the operations or decisions of the company), otherwise known as minority discounting.
The critical difference between the “fair market value” method and the “fair value” method is that the latter does not discount for lack of marketability or lack of control when valuing a closely held business, such as your consulting company.
In other words, the value that your business may or may not command on the open market is not the ultimate consideration in determining its value in the context of a divorce. The relevant value of your business is its value to the marriage, not to a hypothetical third party buyer.
In order to determine the value of a business to the marriage, forensic accountants can utilize a number of different valuation techniques. Generally, greater weight is given to earnings factors for those companies which sell products or services, whereas greater weight is given to asset values for investment or holding companies. Given that your company provides services, the focus of the valuation would likely be the earnings of your company and the amount of “good will” associated with the company. “Good will” is another important concept in the valuation process, which requires a more in-depth discussion.
In short, your business may have value in the context of a divorce regardless of whether it could be sold to a third party. The amount of its value, if any, would likely be the subject of a valuation by a forensic accountant. It is critically important that any business owner, as well as any spouse of a business owner, retain an attorney who is both familiar with the extensive body of case law related to equitable distribution of business interests and experienced in litigating cases where business valuations are at issue.
The Child Support Guidelines are a set of guiding principles that were developed to assist Courts with the establishment and modification of child support awards. Typically, the underlying principles of Child Support Guidelines are: (1) child support is a duty of both parents, (2) children are entitled to the support – not the parent, and (3) children should not be the economic victim of a divorce or out of wedlock birth.
In New Jersey, the Child Support Guidelines are applied in all actions, contested and uncontested, in which the issue of child support must be demined. When calculating child support, a Court will generally consider the following: (1) the gross income of the custodial parent; (2) the gross income of the non-custodial parent; (3) alimony or spousal support payments made from one spouse to the other; (4) the number of overnights the non-custodial parents exercises with the child(ren); (5) the amount either or both parties spend on the child’s share of health insurance premiums; (6) work related childcare expenses; (7) any mandatory deductions from a party’s income including, but not limited to, union dues, mandatory pension contributions, etc.; and (8) whether a child receives governmental benefits. This list is not exhaustive.
Once your attorney or the Court is in receipt the above referenced information, your attorney or the Court will be in a position to calculate a party’s child support obligation. In New Jersey, the Child Support Guidelines are used as a rebuttable presumption to establish and/or modify a child support award. A rebuttable presumption means that a child support award based on the Child Support Guidelines is assumed to be correct unless a party to the litigation can prove that an award of child support award based on the guidelines inappropriate. The following are examples of circumstances where an award based solely on the child support guidelines is inappropriate: (1) when the parties exercise a true 50/50 custody arrangement; (2) when a child is over the age of 18 years of age and resides away at college; and (3) extreme parental income situations (i.e. obligors with a net income less than the U.S. Poverty Guidelines or if the parents combined net income exceeds a certain threshold). This list is not exhaustive.
When child support is established, the party receiving child support will use the money received for the child(ren)’s expenses. Child support is meant to cover most of the child’s expenses. In New Jersey, child support generally covers the child’s share of food (food and non-alcoholic beverages, restaurants, etc.), housing (rent, mortgage payments, utilities, etc.), clothing (all clothing, footwear, dry cleaning, laundry, diapers, etc.), transportation (owning or leasing a vehicle, gas, repairs, parking costs, public transportation, etc.), entertainment (memberships, athletic expenses, music lessons, equipment, games, hobbies etc.), unreimbursed health care expenses up to $250 per year, and other miscellaneous expenses (personal care products, books, magazines, school supplies). In New Jersey, paragraph 8 of Appendix IX –A of the New Jersey Court Rules sets forth in detail exactly what is included in child support. Most States have literature which delineates exactly what is covered by the Child Support Guidelines. Of course, the expenses covered by child support vary from State to State. Therefore, a recipient of child support should review the rules specific to their home state to determine what child support is meant to cover.
I would urge you to speak to an experience matrimonial attorney if you are in the process of a divorce or contemplating a divorce. With full and accurate disclosures, your attorney will be able to advise you as to your rights and obligation as it relates not only to child support, but other issues arising from the dissolution of your marriage.
I own a business with approximately 25 employees. Although my wife has never worked in my business or assisted me in the operation of my business in any way, she is claiming that if we get divorced, I will have to pay her for her interest in the business. Is she correct?
Depending on various circumstances, if one spouse in a divorce action has an ownership interest in a business, that ownership interest can be deemed a marital asset subject to equitable distribution with the non-business owning spouse. Consequently, your wife may indeed have a “marital interest” in your business. In general terms, a “marital interest” in a business is a financial interest that a spouse acquires as a result of having been married to the business owning spouse for a period of time during which the business developed and/or appreciated in value as a result of the business owning spouse’s active efforts.
The value of the non-business owning spouse’s interest in the business is determined in the context of equitable distribution of marital assets. Although there are many complex issues which can be implicated by a divorce, few are more complex and consequential than the issue of equitable distribution of an ownership interest in a business. This issue often necessitates that the ownership interest be valued by a forensic accountant. Once the value is determined, the amount of the non-business owning spouse’s marital interest must be determined.
Proper resolution of these issues requires knowledge of the applicable law, as well as the ability to apply that knowledge to complex facts. It is therefore critical in any divorce case concerning equitable distribution of a business that each spouse retains a matrimonial attorney with substantial practice experience in this area and a command of the extensive body of law relating to equitable distribution of business interests.
I Inherited Money From My Parents during our Marriage, Do I Need to Share That With My Soon-to-be Ex?
It depends on how and when the inheritance was used. The case law in the state of New Jersey provides that if with your inheritance you bought assets that you placed in your spouse’s name or in joint names, then those assets are presumed to be a gift to your spouse and you have to share those assets with him/her. The same is true if you place all or some of the money in an account in your spouse’s name or in joint names. The amount placed in your spouse’s name or in joint names is presumed a gift to your spouse. If, however, this was done close to the filing date of the complaint for divorce, then you can make an equitable argument that had you known your spouse wanted a divorce (or had engaged in conduct that led you to file for divorce such as an affair), you would never have gifted the money to your spouse and thus, your spouse should not get any of it or he/she should get less than 50%.
If you used any part of your inheritance or all of it to purchase an asset or assets in just your name, then it is exempt from equitable distribution and thus, your spouse does not share in it. However, you have the burden to prove that the money was in fact inherited and placed into the asset or assets as you claim. Thus, you need a paper trail that shows the money you inherited was deposited into the accounts and/or was used to purchase assets you allege they did.
However, even if an inheritance is exempt, it can be used for support purposes. If you or your spouse has an alimony and/or child support obligation, a court can impute interest on your inheritance or use the interest that your inheritance is generating and add it to your annual gross income for purposes of determining support. For example, if you have $500,000 inheritance that is exempt, a court could impute interest of 3% per annum and thus, $15,000 will be added to your gross annual income for purposes of determining support.
Generally, you should not move out of your house until you have a written agreement signed by you and your spouse that resolves all of the issues in connection with your divorce for the following reasons:
First, if you move out, you lose leverage, especially if you are seeking physical custody of your children and/or more parenting time than your spouse wants to agree to and your spouse will not let you move out with the children. You also lose leverage if your spouse does not want to resolve your case or if your spouse wants to drag it out. If your spouse is in the marital residence without your presence, he/she has no incentive to settle the case, especially if all of the bills are being paid.
Second, if you move out and you are entitled to support, you will probably receive less support than you would otherwise receive when your case is resolved because the court will consider the fact that the supporting spouse is maintaining the residence and thus, preserving your equity, in determining pendente lite support (which is what the court calls support prior to your case being resolved).
Lastly, if you are the supporting spouse and you move out, the court will seek to maintain the status quo that existed financially during your marriage. Thus, if you typically paid all or part of the bills in the marital residence, this will continue to some degree. Thus, you will be contributing toward your spouse’s shelter expenses, as well as paying all of your own. Sometimes the spouse in the marital residence receives more support until your case is resolved than he/she is entitled to because the court considers part of the support award as a benefit to you – to preserve your investment/equity in the marital residence. If this is the case, then your spouse will not want to resolve the matter quickly because it will mean a reduction in support.
New Jersey is in the minority of states that allow courts the discretion to require divorced parents to pay for their children’s college education. In the case of Newburgh V. Arrigo, the New Jersey Supreme Court held that in “appropriate circumstances” parental responsibility includes the duty to assure children of a college education. The Court established the following factors for the court to consider in determining whether these “appropriate circumstances” exist:
- Whether the parents, if still living with the child, would have contributed toward the cost of the requested education;
- The effect of the background, values and goals of the parent on the reasonableness of the expectation of the child for higher education;
- The amount of the contribution sought by the child for the cost of higher education;
- The ability of the parent to pay that cost;
- The relationship of the requested contribution to the kind of school or course of study sought by the child;
- The financial resources of both parents;
- The commitment to and aptitude of the child for the requested education;
- The financial resources of the child, including assets owned individually or held in custodianship or trust;
- The ability of the child to earn income during the school year or on vacation;
- The availability of financial aid in the form of college grants and loans;
- The child’s relationship to the paying parent, including mutual affection and shared goals as well as responsiveness to parental advice and guidance; and
- The relationship of the education requested to any prior training and to the overall long-range goals of the child.
The Family Courts in New Jersey support the public policy of encouraging the higher education and ultimate success of children. The divorce of one’s parents should not prevent a child from obtaining a college degree. If a child has the aptitude and commitment to seek higher education, his or her parents are usually ordered to contribute in accordance with their abilities to pay.