How Will Your Divorce Impact Owning a Business?
If you own a business, or your spouse does, and you plan on divorcing, it is potentially a big issue that must be addressed.
Marital property is usually divided during a divorce. That can be done through an agreement by the spouses or a judge’s order if no agreement is reached. That marital property can include ownership in a business.
Every divorce and business is unique and how it’s handled in your case can vary depending on your circumstances.
Karen Ann Ulmer represents clients who are ending their marriages. Her divorce practice can help you whether you, your spouse, or the two of you own a business. Dealing with this issue can be very stressful and emotional, but it doesn’t have to be that way. If you have any questions, call us at (215)608-1867.
Issues Outside Divorce Law May Determine What Happens to the Business Ownership
Different agreements can impact the division of business ownership in a divorce:
- Ownership: If it’s a small business with more than one owner, there should be an agreement between them. It should clearly spell out what happens to the divorcing partner’s share. It could state that their share needs to be sold to the other partner(s) at a given price or the price may be calculated based on the company’s value or some other calculation.
- Partnership agreements: If there was a partnership agreement in place before the marriage, it may have required that a prenuptial agreement be signed specifically stating how the non-ownership spouse will be compensated (or not) should the marriage end in divorce.
- Pre or post-nuptial agreements: Before or during the marriage, a couple may have agreed on financial matters if they get divorced. How business ownership would be handled may be part of that agreement.
If you and your spouse both own a business, you need to decide if you want one or both of you to sell your interests. If the divorce is amicable and you both feel you can work together, you can both keep your interests and see if you can work it out. However, the details of this arrangement, including what happens should a spouse want to cash out, should be clearly spelled out. It is important to remember that you are divorcing for specific reasons and working together may be very difficult. We recommend giving this a trial run with very detailed scenarios detailed in agreements to protect the business and both spouses in the future.
How Should the Business Ownership Be Divided?
Marital assets (generally what the couple obtained during their marriage) are supposed to be split equitably or fairly under state statute 23 Pa.C.S. § 3502(a). If one spouse has an ownership interest in a business, it could be split with the other based on the following factors:
- The length of the marriage
- The age, health, income, vocational skills, employability, estates, liabilities, and needs of each party
- The contribution by one party to the education, training, or increased earning power of the other
- The opportunity for each party to acquire capital assets and income in the future
- The income sources of both parties, including insurance or other benefits
- The contribution or lessening by each party of the acquisition, preservation, depreciation, or appreciation of the marital property, including the contribution of a party as a homemaker
- The value of property set apart to each party
- The parties’ standard of living established during the marriage
- Each party’s economic circumstances when the property will be divided
- How taxes and costs impact the property division
- Whether the party will be the custodian of any dependent minor children
Either through an agreement or court order, it would be decided if the business ownership is marital property to be divided, and if so, by how much and how that would be accomplished.
How Might This Play Out?
A common outcome is the value of the ownership would be determined and the party owning it would pay the other spouse for their share. That payment could be in cash or as part of a larger asset agreement. If the husband owns the business and must pay his wife $100,000 for her share of ownership, he could give up claims to $100,000 worth of other assets (cash, investments, share of the house, vehicles) which would go to the wife to satisfy what’s owed.
It is also common for this amount to be paid out over time so the business can remain solvent. However, we recommend putting safeguards in place in case the business is sold or starts to encounter financial trouble. Both the paying and receiving spouse need to be protected.
Get the Help You Need From an Attorney You Can Trust
Whether you, your spouse, or the two of you together own a business and want to learn more about how a divorce may impact you, call our office at (215) 608-1867 or book a consultation online now. We can speak over the phone, via a teleconference, or meet in one of our offices in Doylestown or Langhorne.