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I own a business that had a couple of rough years in 2013…

I own a business that...
I own a business that had a couple of rough years in 2013 and 2014. In 2015 and 2016 I did manage to make a profit, but I again lost money in 2017. With negative income over the past 5 years and with the money taken from the business to pay living expenses I still have accumulated a large amount of debt. I am 30 to 60 days past due with all of my suppliers and they are threatening to cut me off. I have very little cash left in the bank. I am also in the middle of a divorce. I told my husband over the summer about the financial state of the business and that we needed to sell our expensive house and put the money back in the business so I could try to turn it around. That without doing this we would be insolvent by the end of the year. He responded by filing for divorce. Now I can't sell the house, take loans, etc. and the business is doomed. He hired a team of forensic accountants to go through the business books and they found them clean. They valued the business at $600k. The business is almost $2MM in debt so if I sold it there would still be $1.4MM in debt and nothing to split but my husband insists I owe him $300k for the business, half the equity in the house, etc. I have taken shareholder loans out of the company in excess of $700k to pay our living expenses. (prior to the rough years I was making about $200k per year). I could possible get a business line of credit to keep the company going another few months but that is it. My worry is that I will be ordered to pay him all this money. Then the business will go under and I'll have nothing to pay him and have to cash out my entire retirement to pay him and he'll have like $600k and I'll have nothing and still have to file bankruptcy - and still owe him after because divorce settlements are not dischargable. I am wondering if its perhaps better to file business bankruptcy now. The books would clearly show this was necessary. Will this take the value of the business off the table? I have personal guarantees on everything so this would be followed quickly by a personal bankruptcy. I have no problem giving him all the equity in the house and money in savings as I would lose this anyway in a bankruptcy. My concern is having to cash out my 401k and literally having nothing.
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Customer reply replied 1 month ago
This is for New York - I tried selecting the state and I don't think it got the right one.
Answered in 30 minutes by:
1/13/2018
legalg
legalg, Attorney
Category: Bankruptcy Law
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Hello! I will be reviewing your question and posting a response momentarily; if you have any follow up questions please respond here. Thanks!

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The idea of equitable distribution is that all marital property will be looked at, and the court will divide the property in a fair (not necessarily equal) manner.

One party may assert that a certain percentage is fair, but the court will be the arbiter if the parties cannot reach a settlement agreement.

The court will consider the following factors per the statute: (please note #8 below in particular) -

N.Y. DOM. REL. LAW § 236B(5)(d)(1)-(9). The factors are: 1. The income and property of each party at the time of the marriage, and at the time of commencement of the action; 2. The duration of the marriage and the age and health of both parties; 3. The need of a custodial parent to occupy or own the marital residence and to use or own its household effects; 4. The loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution; 5. Any award of maintenance under subdivision six of this part; 6. Any equitable claim to, interest in or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party; 7. The liquid or non-liquid character of all marital property; 8. The probable future financial circumstances of each party; 9. The impossibility or difficulty of evaluating any component asset or any interest in a business, corporation, or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party. The statute was later amended to include the tax consequences to each party; the wasteful dissipation of assets by either spouse; and any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration. See N.Y. DOM. REL. LAW § 236B(5)(d)(10)-(12).

So if the business appears to be going bankrupt and has no equity the court will typically not divide that asset and will give control to the managing spouse (and possibly an ownership interest should the business turn around).

But they generally don't allow a nonmanaging spouse to receive a cash offset for a business that has no value as that would not be "just" nor "equitable".

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Customer reply replied 1 month ago
Isn't "appears to be going bankrupt " very subjective?
The judge is allowed to make that determination ad the judge is given discretion to decide what is equitable and may consider the viability of a business in that calculation. They may appoint an accountant or other expert witness to evaluate the situation but the judge as arbiter of facts is the person that ultimately determines value and division issues.
legalg
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Customer reply replied 1 month ago
to have the judge decide basically that means going to trial. What if I go bankrupt in the meantime
that is correct.If the bankruptcy then is filed with the pending trial the court would defer to the bankruptcy trustee as they would have jurisdiction over the assets involved in bankruptcy and would likely address other issues such as support issues, child custody if applicable, etc.
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