How Case Law Can Affect Business Valuation in a NJ Divorce
When there's a divorce in New Jersey that goes to trial, sometimes it becomes what's called "case law," meaning that the case involves facts and circumstances that may be applicable to other cases.
And there was a case a while back called the Stenniken case. And what happened in this case, it was a business owner, he owned the business and he worked the business, he took a salary from the business and he was getting divorced.
And the judge in this case had two things to decide, equal distribution because they had to divide the business up between the non-money spouse and the money spouse.
In addition, they had to calculate alimony. So, what the judge did was, he said, "Okay. So, let's do a business valuation." And when you did the...this company was valued at, based on discounted cash flows.
So in order to get discounted cash flows, you have to deduct the compensation that the owner of. And then you value the business, let's say, at $100,000, and then the non-party spouse gets a certain percentage of that.
Then he had to calculate alimony. And this is where things went a little bit awry, but basically what should have happened was the compensation that was deducted in order to calculate the value of the business should have been what the alimony was based on.
And this was not exactly done properly. But the Stenniken case, the theory, at least, is correct, how it was applied in that case is not correct.
In most of the cases we work on, the facts and circumstances are far different and the case doesn't apply there most of the time.
So, in matrimonial matters, it's important to understand case law and see if the facts and circumstances make any sense on the current divorce that you're working on.
If any questions about the Stenniken case, feel free to give me an email.Return to Video Gallery