While there are always exceptions to the rule, unlike most other assets, though I have seen it happen, businesses are rarely divided 50-50. Yet there is very little case law that explains why this is. In fact, until yesterday, there really wasn’t any case other than Orgler v. Orgler that provided a rationale for deviating from 50-50. At issue in Orgler was the business owner’s argument that the trial court failed to deduct hypothetical taxes, payable upon the future sale or transfer of the business distributed to him. The Court noted that the hypothetical taxes are not immediate and too speculative. That said, while not deducted from the present value of the assets, the hypothetical tax should have been considered as a factor in determining the distributive share of each party. I previously blogged about this when discussing a Pennsylvania case that considered hypothetical costs of sale.
So other than the hypothetical taxes, there is very little written about why their should be a disproportionate split of a business. I have heard judges and mediators say something like “you need to give the guy a reason to get out of bed in the morning” or “you need to reward him for his efforts”, you don’t see that in the case law.
However, on February 22. 2022, in the reported (precedential) decision in the case of D.M.C. v. K.H.G. another rationale for a disproportionate division of an interest in a business was given. Specifically, Judge Mawla stated:
This is not unusual where, as here, one party operates a business subject to equitable distribution or retains the risk associated with an asset; i.e., plaintiff’s retention of the loans receivable and the risk associated with collecting them while paying defendant her share of the asset.
While this is a very small nugget in a long (29 page) opinion (which we blogged on separately), it at least provides recognition that businesses are not usually divided equally, that that recognition should be given to someone retaining the risk while paying out after=tax cash. At least we have something to explain to clients other than the hard to conceptualize “hypothetical taxes” or potentially distasteful other rationales.
Eric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric is resident in Fox Rothschild’s Morristown, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973) 994-7501, or firstname.lastname@example.org.