Equitably Distributing Business Values Post Pandemic
Through no fault of their own, those small business owners who settled their divorce cases based on pre-coronavirus conditions and a then-booming economy must seek to salvage what is left of a business that was already equitably distributed in part to the other spouse based upon an absurdly high value errantly opined at trial by a court-appointed expert .
May 04, 2020 at 09:15 AM
7 minute read
Michael Scheffer's article entitled "New York Risk of Loss After Coronavirus" (NYLJ April 10, 2020, p.4) struck a marital chord that will likely reverberate through the courtroom doors of virtually every pending divorce case involving the valuation of an existing business or one that closed its doors due to the pandemic.
Unlike those cases where the New York Risk Act (General Obligations Law §5-1311), or a carefully worded risk of loss contractual provision, governs the allocation of the risk of loss between a buyer and seller of real property, in divorce actions, the risk of loss between a husband and a wife over the value of a pandemic-affected business is too often placed squarely and unfairly on the owner spouse's shoulders. Through no fault of their own, those small business owners who settled their divorce cases based on pre-coronavirus conditions and a then-booming economy must seek to salvage what is left of a business that was already equitably distributed in part to the other spouse based upon an absurdly high value errantly opined at trial by a court-appointed expert .
Unfortunately, once a case is settled or decided, there is no going back in time to rectify an inequity caused by an optimistic valuation that a harsh reality transforms into a windfall for one spouse over the other. Perhaps this "take no prisoners" pandemic will finally convince the judiciary to reconsider its standard approach of awarding an equitable distribution to the non-owner spouse of a portion of a value set by an expert rather than being set by the actual earnings of the business after divorce. Indeed, as the law stands now, a non-owner spouse awarded 20% of a business valued at $5 million at trial just before the pandemic struck and thereby decimated the owner spouse's business gets to keep the $1 million non-dischargeable and non-modifiable distribution, despite the fact that the owner spouse tragically lost his/her entire business to the pandemic. Simken v. Blank, 19 N.Y.3d 46 (2012) (where the Court of Appeals refused to reform a marital agreement where the husband's share of the marital estate turned out to be worthless due to the fact that Bernie Madoff had made off with his money); Kojovic v. Goldman, 35 A.D.3d 65 (1st Dept. 2006) (where the Appellate Division refused to set aside the parties' agreement after the wife learned her husband received $18 million on the sale of stock that she had undervalued in reaching a settlement).
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