Dividing a Business in a Divorce
Oftentimes in a divorce, one of the assets that the family court in Pennsylvania must decide how to distribute is a business. In most instances, the Court is not distributing or dividing the control of the business but rather the value. If the business is premarital, the increase in value during the marriage is considered for purposes of the divorce. In order to determine the value of the business, the parties can either stipulate to the value or they will need what is known as a business valuation. There are generally three different methods used to value a business and one method or a combination may be appropriate depending on the type of business. If the spouse who does not control the assets needs to get a business valued, it may be necessary to petition the court during the course of the divorce to request the other spouse to advance the cost of the business valuation. A business valuation is neither simple nor inexpensive.
Due to the cost of a business valuation, some parties make the mistake and assume the business does not have any value. While that may be true in some cases if the business is solely due to the efforts of the spouse, two questions to consider are 1) whether the business has any hard, physical assets that could be liquidated or sold and 2) whether the business could be successfully sold to a third party. If the answer to either of those questions is a yes, then there is some value to the business.
Depending on the value of the business and other assets of the marriage will determine how the business factors into the distribution. If an offset with other assets can be accomplished, it may be best to do an offset of the value. In cases where the business is the most valuable asset, a structured buyout will be necessary. This may involve a combination of a lumpsum and payments over time.
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