Self-Employment Effects on Divorce Matters in NJ

Self-Employment and Divorce in New Jersey: Navigating the Legal Challenges for Self-Employed Individuals and Strategies for Success if Your Spouse Works for Themselves

Divorce can be a very tenuous period of your life, especially if there are many issues being contested. Finances is a very common issue that is contested in a divorce, and it can get extremely complicated. If a spouse, or soon to be ex-spouse, is self-employed, it could be extremely easy for them to hide the amount of money that they are earning every year, which means you get less money in the divorce. If you are self-employed, you have to be ready to make sure that your business is protected during the divorce.

Understanding Self-Employment: Key Characteristics and Responsibilities

If you are self-employed, it means that you work for yourself. Self-employment means that you run your own business, are responsible for your own taxes (you pay self-employment tax) and file your taxes quarterly. You would have had to register your business with the state and obtain the proper licenses and permits in order to conduct business under your business name. Furthermore, self-employed individuals are responsible for their own health insurance and retirement plans.

Property Division in Self-Employed Divorces in New Jersey

A major stage in a divorce is the distribution of marital property. This can be complex when dealing with a self-employed individual. Equitable distribution is concerned with dividing the property of the marriage equitably. The most obvious issue is determining who owns what when it comes to business interests. The concept of a “business owner divorce” kicks in when one or more spouses in a divorce owns their own business or is self-employed. It involves the valuation of a business and it can be very labor-intensive and complicated.  Spouses may argue over their respective interests in the business, especially if they both worked for the same business.

Also, a few things must be determined during this stage. For example, the business must be properly valued. There is usually a professional appraisal and financial analysis of the business to properly determine the worth of the asset. Attorneys may also have to review business records, business statements, contracts, accounts receivable and payable as well as prospective business moving forward. Lastly, what will be the ongoing business involvement between spouses? Will a buyout have to occur, or will both spouses continue to enjoy the benefit of the income generated by the business?

Strategies for Determining Income in Self-Employed NJ Divorces

Another issue is determining the amount of income, since it is not a permanent, salaried job. This can be a very complicated aspect of self-employed divorces. Self-employment might mean hidden assets as well or income being underreported. In order to determine the income of the self-employed there are certain things that can be done. Firstly, you can review current and past personal and business returns in order to better understand the amount of income earned and possible income earned in the future. Secondly, you can review profit and loss statements, bank statements and other financial documents of the business. You have the option of hiring a professional business appraiser who can offer an expert opinion as to the value of the business.

Lastly, you can account for any “in-kind” benefits, which are non-cash benefits such as a company car, health insurance, etc. Debt and liabilities could be another issue to address, as well as how they will factor into the separation.

Determining Spousal Support in Self-Employed Divorces in NJ

To determine spousal support it is absolutely vital to retain an attorney specializing in divorces involving one or more self-employed spouses. Your attorney will most likely ask you for as many documents regarding your finances as possible. The more documents and information, the better. Once the business is properly valued and income is accurately determined, the amount of spousal support can be determined. This number will almost always be based on how successful the business has been in the past year, any impact that the industry faced from outside factors, or if they are undertaking a completely new industry. This can be done once every year or over multiple years in order to maintain fair assessments of what the paying spouse can afford.

Factors Influencing Child Support Payments for Self-Employed Parents

Much like spousal support, child support can be difficult to determine when dealing with a self-employed party to a divorce. The main point of child support is to benefit the child. However, many factors go into determining what child support is to be paid, including the income and ability of the payor. Courts determine child support through the application of statutory guidelines. If income exceeds these guidelines, supplemental guidelines will be applied. The court will require excessive, detailed financial documentation, and forensic accountants may be required in highly complicated situations to determine accurate levels of income.

Moreover, self-employed parents in a divorce can pre-pay their child support if the court approves their request. The court will analyze various financial documents showing income projections and the feasibility of a prepayment plan. However, large upfront payments may not be the best idea depending on the financial situation. There is also the risk of actual income seriously deviating from the projected income of the self-employed. If these drawbacks outweigh the potential for no future disputes and stability or predictability, prepayment can be a great option.

Protecting Yourself from Hidden Income Tactics in Self-Employed Divorce

When a party purposely underreports their income in order to manipulate the court when deciding what spousal or child support is to be paid the courts will typically punish that party. The Appellate Division can make the guilty party pay 100% of the counsel fees, which can be an extraordinary amount depending on how long the divorce has been going on. The Appellate Division will only disturb the counsel fee award ordered by the trial court on the rarest of occasions.

The case of KW vs SW is very educational when it comes to self-employed divorces. The biggest takeaway from this case is that it is more beneficial to obtain clear and accurate records of your business or your spouse’s business when trying to determine income. If you don’t provide them, the divorce will take more time. The trial court in finding that the plaintiff’s testimony regarding their earnings was “lacking in credibility, disingenuous, and intentionally misleading,” awarded counsel fees in the amount of $102,000 and the Appellate Division agreed.

Get Experienced Representation From our Attorneys at Montanari Law Group for Your Self-Employment Divorce Case in Passaic County NJ

A divorce attorney is crucial for representing you in a divorce involving one or more self-employed parties. With vast experience and knowledge of the complexities involved in self-employment divorce scenarios, our divorce lawyers at The Montanari Law Group can help with experts that support your case, we know which documents are needed, and we can ensure that the outcome (support payments and distribution of property) is fair and just. An experienced, seasoned attorney at our family law firm can help you get through this tumultuous period of your life as quickly and painlessly as possible. We assist self-employed spouses with the divorce process and other family law matters in Ridgewood, Millburn, Hawthorne, Woodland Park, Franklin Lakes, Caldwell, Verona, Montclair, and throughout Northern New Jersey. Contact (973) 233-4396 or fill out our convenient form to request your free consultation with an attorney today.