Like many other states, Pennsylvania uses the equitable division approach to distributing marital assets. When your marital assets include a business, handling it fairly can present a challenge.
Your business may fall into the category of a marital asset if you started it after getting married. If the business existed before the marriage but gained value afterward, the increase may count as marital property.
Before division, your business will need an accurate valuation. This process is often complicated, involving various financial experts who can assess various factors such as market forecasts, current financial position and any taxation issues.
Identifying each spouse’s share
Because equitable distribution is not as simple as a 50/50 split, judges often consider the relative contributions of the spouses to growing and sustaining the business. The more equal the contributions, the more likely division becomes.
There are several ways to divide a business. The simplest method, though often not the most preferable, is selling off the company and dividing the proceeds. However, few people want to just give up a business they still have plans for.
Buying out the ex-spouse
If the judge determines your spouse has a substantial share in the business, you may have several options for buying out that share if you want to keep the business. You can give up your share in other marital assets adding up to an equivalent value. But this may not be an option if your shares in other assets fall short of the value of your spouse’s share in the business.
Courts may also set up a payment plan for you to buy out the share with monthly installments over a period of years. In some cases, the judge may classify this plan as alimony payments, which can have both benefits and drawbacks, such as in regards to taxation.
Drafting an agreement
You and your spouse may choose to agree to a particular disposition of the family business by including relevant provisions in a prenuptial agreement or by drawing up a divorce agreement covering this issue. Judges generally enforce fair and valid agreements.