October 11, 2013

How to Protect Your Business During Divorce

It’s your life’s work – protect your business during and after divorce

After years of hard work and dedication, the value of a business may run deeper than its bank accounts. Families often become entangled in the ownership and daily operation of a business. With this comes complicated and emotional situations – especially in the event of divorce. Protect your business during divorce to ensure stability and continued growth.

Once the tides have shifted towards separation and divorce, business owners are forced to consider what becomes of their co-owner spouse. While emotionally painful, the financial backlash of buying out the other spouse may be costly and deplete cash. Conversely, remaining in joint ownership can create a divide among staff or clients. Without any protections in place, divorcing co-owners do not have many peaceful options.

To protect your business during divorce, there are common agreements such as a prenuptial agreement, which would spell out the terms of valuation in the event of a divorce. Often, couples start a business venture after they marry. In that case, a buy-sell agreement will provide the structure for valuation in the event of divorce. These agreements can also determine how co-owners will either sell or value their own interests.

When no agreement is in place to govern valuation and division, Pennsylvania courts must make determinations for the owners. To determine a date for valuation, it could be the date of separation if one spouse manages the day to day operations. It could also be the date of distribution or trial. Once date is determined, there are three possible valuation methods in Pennsylvania: market approach, income approach and asset approach.

The business performance records must be evaluated to determine which method to use. Spouses can find a neutral evaluator to assess the business; however, this often becomes difficult when one spouse suspects the other of hiding assets.

To divide marital property in Pennsylvania, the court relies upon § 3502 which sets forth factors considered to divide assets. For example, length of the marriage, value and contributions toward the business are considered. Additionally, the expense of liquidating the asset and tax ramifications are weighed. In cases where couples have agreements in place, the court should not need to get involved and both are spared the costs.

Your business and your divorce are complex and delicate matters. Where both combine, you should rely upon the experienced and knowledgeable Bucks County divorce attorneys at the Law Offices of Michael Kuldiner, P.C. Call our office to schedule a consultation, at (215) 942-2100.