Protecting Your Business in Divorce: What New York Business Owners Should Know

Is my business marital or separate property in New York?

Marital property is all property either spouse acquires during the marriage and before a separation agreement is signed or a divorce action is started, “regardless of the form in which title is held” (DRL § 236(B)(1)(c)). Marital property is divided equitably; separate property stays with its owner (DRL § 236(B)(5)(b)–(c)).

Separate property includes property acquired before the marriage, inheritances, gifts from someone other than your spouse, personal injury compensation, property acquired in exchange for separate property, and property designated as separate in a valid written agreement (DRL § 236(B)(1)(d)). The burden is on the owner: New York presumes property is marital unless it is clearly separate, and the spouse claiming otherwise must prove it (Fields v. Fields, 15 N.Y.3d 158 (2010)). Keep formation documents, ownership records and financial statements from around the date of the marriage.

A business started or bought during the marriage

An interest in a company, partnership or professional practice acquired during the marriage is presumptively marital, even if only one spouse works in it. Unless it can be traced to separate property, such as a business bought entirely with an inheritance, its value is subject to division.

Equitable does not mean equal. The court weighs the factors in DRL § 236(B)(5)(d), including the other spouse’s direct and indirect contributions as a spouse, parent, wage earner and homemaker. One factor speaks directly to owners: the difficulty of valuing a business interest and “the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party” (DRL § 236(B)(5)(d)(10)). Our guide to equitable distribution explains the factors.

A business started before the marriage

A business you owned before the wedding is separate property, and its increase in value also stays separate “except to the extent that such appreciation is due in part to the contributions or efforts of the other spouse” (DRL § 236(B)(1)(d)(3)). Those contributions can include marital money invested in the business or the other spouse’s work in it.

The Court of Appeals reads that exception broadly. Where an asset such as an operating business is not passive by nature and the owner was actively involved in it during the marriage, “even to a small degree,” the appreciation is marital in proportion to those efforts, reflecting the other spouse’s direct and indirect contributions to the marriage (Hartog v. Hartog, 85 N.Y.2d 36 (1995)). Growth stays entirely separate only when it was due to the efforts of others or to unrelated factors, and not in any part to the owner’s efforts.

For example, if a business worth $200,000 at the wedding is worth $800,000 when the divorce is filed, the $200,000 starting value stays separate. Whether any of the $600,000 increase is marital depends on what caused it: the owner’s work during the marriage, or market conditions and other people’s efforts.

Licenses, degrees and “celebrity goodwill”

Enhanced earning capacity is the added earning power a spouse gains from a license, degree or career success. For divorce actions started on or after the January 2016 effective date of Chapter 269 of the Laws of 2015, the court “shall not consider as marital property subject to distribution the value of a spouse’s enhanced earning capacity arising from a license, degree, celebrity goodwill, or career enhancement” (DRL § 236(B)(5)(d)(7)). The court still considers the other spouse’s contributions to developing that earning capacity when it divides the marital property.

This change concerns earning capacity, not ownership. A medical practice, law firm or other business interest acquired during the marriage is still property whose value can be divided.

How is a business valued in a New York divorce?

The valuation date

The valuation date is the date as of which an asset’s value is measured. The court sets it as soon as practicable after the action begins, and it may be “anytime from the date of commencement of the action to the date of trial” (DRL § 236(B)(4)(b)).

Courts generally value active assets, whose value depends on a spouse’s efforts, as of the date the action was commenced, and may value passive assets that move with the market closer to trial (Halley v. Craven, 236 A.D.3d 512 (1st Dep’t 2025); Lieberman-Massoni v. Massoni, 215 A.D.3d 656 (2d Dep’t 2023)). A business the owner actively runs is usually treated as an active asset.

Valuation approaches and appraisers

A business valuation is an appraiser’s or forensic accountant’s estimate of what an ownership interest is worth. Valuation professionals commonly use one or more of three approaches:

• Income approach: the earnings or cash flow the business is expected to produce, converted to a present value, often after adjusting the owner’s pay and personal expenses.
• Market approach: sales of comparable businesses or ownership interests, where reliable comparisons exist.
• Asset approach: the business’s assets minus its liabilities, often used for holding companies and asset-heavy businesses.

Differences in method and assumptions often explain why two appraisers reach different numbers. Each spouse can retain an appraiser, and the court may appoint an accountant, appraiser or other appropriate expert to testify on equitable distribution or a distributive award, with the cost paid as the court directs (22 NYCRR 202.18).

Financial disclosure

Where maintenance or support is at issue, both spouses must make compulsory financial disclosure, including a sworn statement of net worth. It must list all assets transferred during the preceding three years or the length of the marriage, whichever is shorter, except routine business exchanges of substantially equivalent value (DRL § 236(B)(4)(a)).

Prenuptial and postnuptial agreements for business owners

A prenuptial agreement is signed before the wedding; a postnuptial agreement is signed during the marriage. Either can provide for “the ownership, division or distribution of separate and marital property” (DRL § 236(B)(3)). For a business owner, an agreement can:

• designate the business, its future appreciation and related ventures as separate property;
• set a valuation method, formula or fixed payment for any share the other spouse receives;
• limit maintenance, if the terms are fair and reasonable when made, not unconscionable when the judgment is entered, and do not leave a spouse likely to become a public charge (DRL § 236(B)(3); General Obligations Law § 5-311).

Child support and custody terms remain subject to DRL § 240. See our guides to prenuptial agreements and postnuptial agreements.

Formalities and fairness

The agreement must be in writing, signed by both spouses, and acknowledged or proven in the manner required to record a deed (DRL § 236(B)(3)). An unacknowledged agreement is unenforceable even if both spouses signed it (Matisoff v. Dobi, 90 N.Y.2d 127 (1997)), and a notary’s certificate that omits required language can be fatal (Galetta v. Galetta, 21 N.Y.3d 186 (2013)).

Agreements between spouses are measured against the duty they owe each other: “Agreements between spouses, unlike ordinary business contracts, involve a fiduciary relationship requiring the utmost of good faith” (Christian v. Christian, 42 N.Y.2d 63 (1977)). Applying that standard, the Second Department set aside a postnuptial agreement as manifestly unfair where the wife gave up substantial property and inheritance rights and the spouses’ wealth was vastly unequal (Petracca v. Petracca, 101 A.D.3d 695 (2d Dep’t 2012)).

A separate lawyer for each spouse, an exchange of financial information covering the business’s value and income, and signing well before the wedding can help an agreement withstand a challenge. Disclosure is not a listed statutory requirement in New York, but it helps show that the other spouse understood what was being waived.

Ways to keep the business in a settlement

If the business is marital or partly marital, the spouses can agree, or the court can order, that the owner keeps it and the other spouse receives value in another form. Former spouses can also agree to keep owning a business together, but that takes a detailed agreement on management, distributions, deadlocks and buyout rights.

Distributive award (buyout)

A distributive award is a payment, made under an agreement or court order, that replaces or supplements a division of property; it can be paid in a lump sum or over time in fixed amounts (DRL § 236(B)(1)(b)). When dividing property in kind would be impractical or burdensome, or when distributing an interest in a business would be contrary to law, the court makes a distributive award instead (DRL § 236(B)(5)(e)). The court can also order life insurance that stays in place while a distributive award is being paid (DRL § 236(B)(8)(a)).

Offsetting with other assets

An offset gives the other spouse other marital assets instead of a share of the business. For example, if the marital estate is a $500,000 business and $500,000 in other assets and the spouses agree on an equal division, the owner could keep the business and the other spouse could keep the other assets. Debt, liquidity and taxes also have to be weighed.

Taxes

Transfers of property between spouses, or between former spouses when incident to the divorce, generally produce no taxable gain or loss for federal income tax purposes, and the receiving spouse takes over the transferor’s tax basis (26 U.S.C. § 1041). Because the transfer is treated like a gift for income tax purposes, a buyout is generally not deductible, and assets of equal value may not be equal after taxes. Involve a tax adviser before choosing a structure.

Running the business while the divorce is pending

Automatic orders are court orders that apply in every New York divorce, binding the filing spouse when the summons is filed and the other spouse once served (DRL § 236(B)(2)(b); 22 NYCRR 202.16-a). Neither spouse may transfer, encumber, conceal or dispose of property without the other’s written consent or a court order, “except in the usual course of business,” for customary household expenses, or for reasonable attorney’s fees, and the same exceptions limit taking on unreasonable debt. Failure to obey may be deemed a contempt of court.

Keep the business running normally and keep complete records. Avoid unusual transactions, such as selling major assets, taking on new debt or moving money to related parties, without consent or a court order; wasteful dissipation and transfers made in contemplation of divorce without fair consideration are factors in dividing property (DRL § 236(B)(5)(d)(12)–(13)). The orders also bar changing the beneficiaries of existing life insurance, and our guide to automatic orders covers the details.

Review your company’s operating, shareholder or partnership agreement as well. Transfer restrictions and buy-sell terms can affect how an ownership interest is valued or divided.

Frequently Asked Questions

Is a business I started before marriage separate property in New York?

Yes, but you have to prove it, and growth during the marriage can be partly marital. Appreciation of separate property stays separate except to the extent it is due in part to the other spouse’s contributions or efforts. New York’s highest court has held that when an owner is actively involved in a business during the marriage, even to a small degree, a proportionate share of its growth is marital property.

Can my spouse get half of my business in a New York divorce?

Not automatically. New York divides marital property equitably, which does not necessarily mean equally. If the business is marital, the court weighs factors such as each spouse’s contributions, the difficulty of valuing the business, and the economic desirability of keeping it intact. The other spouse’s share can be paid through a distributive award or offset with other assets instead of a transfer of ownership.

How is a business valued in a New York divorce?

Usually through an appraisal using income, market or asset-based approaches. The court sets valuation dates anywhere from the start of the action to trial; a business a spouse actively runs is generally valued as of the date the action began, while passive assets may be valued closer to trial. Each spouse can hire an appraiser, and the court may appoint a neutral accountant or appraiser.

Can a prenup keep my business separate in New York?

It can help. New York lets spouses agree in writing that a business and its growth will be separate property. The agreement must be signed by both spouses and acknowledged like a deed, and an unacknowledged agreement is unenforceable. Maintenance terms must be fair when signed and not unconscionable at divorce, and agreements tainted by fraud or overreaching can be set aside.

Is a professional license or degree marital property in New York?

No, for divorce actions started on or after the January 2016 effective date of the change. The statute provides that the value of enhanced earning capacity from a license, degree, celebrity goodwill or career enhancement is not distributable marital property, though the court considers the other spouse’s contributions to developing it. A professional practice or other business interest acquired during the marriage is different: it is still property whose value can be divided.

Whether you are planning to marry, already married or facing a divorce, Joel Yacoob can review how New York law applies to your business and what an agreement or settlement could look like. Learn about our contested and high-net-worth divorce representation, prenuptial agreements (fixed fees: Standard $2,500; Complex $4,000; High-net-worth $6,000+) and postnuptial agreements (Standard $3,000; Complex $5,000), or start your case online.

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This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. The law changes and every situation is different; consult a lawyer about your own circumstances.