Dividing assets in a divorce can be challenging, but things can get convoluted when a family business is involved. At Thomas, Conrad & Conrad, our divorce lawyers use their conflict resolution skills and experience to help couples and families come to fair agreements that take everyone’s rights and interests into consideration. Although each situation is unique, there are a few basics to address when a family business is part of a divorce.
Business Valuation
The first and most important step is to get an accurate appraisal of what the business is worth. It’s critical to hire an unbiased third party to do the valuation, whether it’s a certified valuation analyst, an accountant who specializes in business valuation, or another qualified professional. If you believe the valuation is inaccurate, talk to your divorce attorney about steps you can take to get another appraisal. Once an accurate value has been determined, there are several options for divorcing couples to consider.
One Spouse Keeps the Business
Most divorced couples choose this option, which can be fairly straightforward. The spouse who runs the family business usually buys out their spouse’s share in the business. When a spouse who’s acquiring a business doesn’t have enough cash or liquid assets to buy the interest outright, both spouses may come to a settlement agreement and create a note to be paid off over time. In some cases, the company can buy back the departing spouse’s shares, but it’s important to talk to your accountant and lawyer about potential tax liability before taking this step.
Sell the Business
Sometimes the best option is to sell the business and divide the proceeds. This approach gives both spouses a clean break and the opportunity to pursue independent business interests. However, selling a business can take quite a while, which can also drag out the divorce process. Remaining civil and working with your spouse toward the common goal of selling the business can make things easier for everyone involved.
Both Spouses Keep the Business
Staying in business with your ex-spouse can be a tricky proposition. Even couples on the best of terms may find it challenging to remain business partners after a divorce. A large part of divorce is making a fresh start. Owning a business with your former spouse can make it tough to move on emotionally and financially.
Determining Whether The Business is Marital Property
To discern ownership rights to a business, the court may consider several aspects. Some common factors in determining ownership include:
- The date the business was established
- Where the funds to start the business originated
- Each party’s contributions to the business
- How much each party was involved in running the business
- The value of the business before marriage
- The current value of the business
- The skills needed to successfully run the business
Depending on the circumstances, the business may be considered marital property even if it was established or acquired before marriage. On the other hand, a business that was inherited or gifted during marriage may not be considered marital property. In cases where extended family members are involved, things can get even more complex. That’s why it’s critical to find an attorney who is well-versed in handling these types of divorce cases and how property division works in Pennsylvania.
How Your Divorce Attorney Can Help
If you are the owner (or part-owner) of a family business, it’s essential to have proper legal representation to ensure your interests are protected. Conflict resolution methods such as mediation can help you avoid lengthy, expensive court battles and may even help you salvage your relationship with your ex-spouse. The easier proceedings are on the whole family, the better, especially if your adult children are involved in the business. A skilled family law attorney may be able to keep you out of court and help you come to a fair agreement in a timely manner.
Contact An Eastern PA Divorce Lawyer
At Thomas, Conrad & Conrad, our family law team is committed to helping couples and families resolve disputes and property division issues in an expedient and civil manner. We approach every single case with compassion, but will also fight for your rights when need be. To schedule a consultation, contact us online or call our Bath office at 610-867-2900. We’re proud to serve clients throughout eastern Pennsylvania.