Valuation of Business Entities And/or Enhanced Earnings

In a divorce or separation, all marital property is to be equitably distributed according to the various factors enumerated in the Domestic Relations Law.

New York State defines “marital property” more broadly than any other state in the country. New York’s definition of marital property includes the enhanced earning capacity available to a party due to advanced academic degrees or certifications or licenses acquired during the marriage.

For example, if during the marriage, one of the parties acquired a college degree or a post-graduate degree such as an MBA or Ph.D. and to the extent that such an academic degree enhances the earning capacity of that individual over that person’s working life, the economic benefit derived from the academic degree is treated as a marital asset at the time of divorce.

The valuation of that earning capacity depends on numerous factors and the methodology utilized for valuation. Therefore, it is critical that at the time of divorce/separation, all parties be aware of the breadth and scope of “marital property” in negotiating and attempting to achieve a fair and equitable resolution of all economic issues.

In some marriages, particularly in short-term marriages of new professionals, including doctors, lawyers, and accountants, the enhanced earning capacity may be the most valuable asset available for equitable distribution. In simplest terms, enhanced earning capacity is the present value of the additional income a party will earn over their lifetime due to training or education received during the marriage.

Different methodologies are available in determining the value of a party’s interest in a business entity. This may necessitate certain legal proceedings to obtain the information necessary to have a proper valuation, which usually involves various forms of discovery, including collecting documents or conducting a deposition of relevant persons.

Protecting the value of educational attainment earned during the marriage or interest acquired in a business during the marriage is key to understanding the equitable share. The members of our firm are experienced in this area.