Dividing a Business During a Divorce
Divorcing spouses spend significant time and energy deciding how to divide marital assets. But for some couples, it is important to consider how to divide ownership in a business. In Pennsylvania, either spouse’s interest in a business that has been established or developed over the course of the marriage is potentially subject to equitable distribution in a divorce.
The first step in equitable distribution is to determine whether the business interest is in fact marital property. The answer is usually yes if the business was started during the marriage, if both spouses contributed to the business in some way or if funds owned by both spouses were used to start the business. Assuming the business is marital property, then the court will have to determine the value of the business in order to calculate what is owed to each spouse. This is typically done by utilizing an expert on business valuation.
Once the value of the business interest and each spouse’s share is determined, there are various options for carrying out the division. One option is to split ownership of the business. The former spouses may continue to work together to run the company and act as co-owners for the foreseeable future. Or the spouses may be able to agree on each one having a certain share of the interest in the business and receiving income proportional to that share. These options, while preserving each spouse’s interest in the business, are also risky as they may lead to continued disagreements down the road.
Another option is to sell the business in its entirety and to split the value received from the sale. This allows the parties to cleanly and completely separate from each other without risk of future entanglements. Another alternative is a buyout. If one spouse feels strongly about keeping the business, he or she can offer cash and other assets in exchange for the full ownership stake.
If you and your spouse are getting divorced and one or both of you have an ownership interest in a business, you should consider speaking with a divorce attorney who can help you evaluate the options and to select the one best suited to your situation. Negotiating an agreement for the division of the business that is satisfactory to both spouses is preferable to having a judge decide the matter, which almost always leads to one side being disappointed.
The Law Offices of Jennifer Courtney, P.C. in Yardley has experience counseling spouses on multiple ways to divide a business during divorce in Pennsylvania. To set up a time to speak with one of the attorneys, please call 215.493.3360 or contact us online.