Pittsburgh Family Law Services, P.C. Blog

If you own and operate your own successful business, your biggest concern likely surrounds whether it will be divided in the divorce.  Whether you run the business yourself, have numerous employees, or you and your spouse built it together, you have to determine what it is worth and how it will be divided in Equitable Distribution.  What ultimately happens will depend on whether your business is considered “marital property” and whether you have some agreement for what will happen in the event of a divorce or separation.  

If your business is not marital property

To go back to the basics, the general rule in Pennsylvania is that if you acquired property or property increased in value during the marriage, it’s marital.  There are exceptions to this.  The most common exception which applies to business owners is property that is excluded by a Pre-nuptial or Post-nuptial Agreement.  If you and your spouse specifically agreed that your business will be your separate property, then it will not be divided in Equitable Distribution.  However, it’s very important that you read your Agreement carefully to make sure it actually excludes your business.  

Just because your business isn’t subject to division doesn’t mean we ignore that it exists.  If you are receiving income from your business, if it produces dividends, if you take large profits, all of that can impact other obligations you may have such as child support.  Additionally, in determining the proper distribution of your estate, the Court will consider your economic circumstances and what types of income and other benefits you already have available to you.  Ultimately, the Court likes to see a formal business valuation so it knows exactly what you have available and can make a proper determination.  

If your business is marital property 

If you don’t have a valid Agreement excluding your business, then it is part of the marital estate and subject to Equitable Distribution.  This will require determining the total value of your business:  what a buyer would pay for the business if you were to sell it.  This usually requires an in-depth business valuation performed by an expert.  There are multiple ways to value a business depending on the type of services offered, and the Court and attorneys rely on experts to determine an appropriate value.  This can be a lengthy process but it is critical to ensuring you’re working with an accurate number.  You simply cannot Google your way through an appropriate business valuation.  

If you and your spouse are amicable, you can jointly hire an expert for a valuation.  This often reduces the amount of time spent because only one person has to review documents and issue reports.  Of course, this isn’t always possible or realistic.  You may not be amicable, or you may disagree about the value of the business.  In that case, it makes more sense to hire separate experts.  Often, these professionals will consult with each other to reach a consensus on the proper way to perform the valuation and the appropriate value.  Your lawyers and the Court will review the experts respective reports and those will help to guide in reaching a resolution.  

How does the business get divided?  

Once we determine the total value of your business, the next step is determining how it actually gets divided in Equitable Distribution.  The answer to that really depends on the nature of your business, the size of the marital estate, whether there are other assets, and numerous other factors.  In some cases, one party keeps the entire value of the business in exchange for the spouse receiving every other asset or the vast majority of the other assets.  In other cases, the owner makes periodic payments to the spouse over a period of time because a lump sum amount just isn’t possible.  

If you own a business of any size, it is critical that you work with a skilled family law attorney.  Your attorney will determine whether your business is considered marital property, help you arrange for a valuation with an expert, and discuss a proper distribution once you have a definite value.