Business owners often put in years of hard work and dedication to make sure their business is a success. However, married business owners who are planning to get a divorce should keep in mind that their business may be seen by the court as marital property, meaning that their soon-to-be ex-spouse could get a share of the business in the divorce.
Marital property will be subjected to equitable distribution laws
Pennsylvania family law courts follow the laws of equitable distribution when it comes to dividing up property in a divorce. This means that all marital property will be divided in a fair and equitable manner, as determined by the court. Marital property refers to any property that was purchased during the marriage or purchased fully or partially with marital funds.
How is a business divided by the court?
The first step to determining how to divide a business in a divorce is often to determine whether the business is marital property. The court will consider several factors, including:
- When the business was formed
- Which spouse formed the business
- Type of business and business structure
- Contributions of each spouse to the business
- Whether marital funds were used to support the business
- Whether the business was successful prior to marriage
- Value of the business and changes in value over time
If the business is deemed as marital property, the court will then have to determine the value of the business. There are multiple ways to calculate value, including:
- Income approach: Considers present value of the business and future earnings.
- Market approach: Considers the value of other comparable businesses.
- Asset approach: Considers tangible and intangible assets of the company.
Divorcing spouses can hire a business valuation expert together, or hire separate experts, to value the business. The court will then review the expert assessments and determine the value.
If the court determines the business is marital property and your spouse is entitled to a share of the business, you may sell the business and divide the profits or pay your spouse profits over time. You may also cover your spouse’s share by paying them with other assets. Your attorney can help protect your business interests and advise you throughout the property division process.