If You Plan to Marry, and One or Both of You Own a Business, a Prenuptial Agreement Makes Sense

A properly drafted, enforceable prenuptial agreement may greatly reduce, if not prevent, disputes concerning the equitable distribution of marital property if a married couple divorces. Making such an agreement before you marry is not a sign your marriage is doomed. It only means you are smart and preparing for a life-changing event that may or may not happen, especially if one or both of you own a company. 

If you own a business, do not have a prenup, and the business grows, your spouse would be entitled to half of that growth upon your divorce. You could be forced to give up other assets, pay your spouse over time, or, in the worst-case scenario, close the business. However, a well-crafted prenup can protect you and your business.  

What Is Equitable Distribution? 

Part of the divorce process is the equitable division of marital property. The couple’s assets and debts are organized, and their values are estimated. The parties must decide which are separate or personal and belong to the individual and which are marital (normally property acquired during the marriage) and belong to the couple, or a court will do it for them. 

Marital property is subject to fair or equitable division during a divorce. The increased value of separate property could also be divided depending on the circumstances. The parties can agree to this, or it will be resolved at a trial. 

What Is a Prenuptial Agreement? 

What is a prenup? A prenuptial or antenuptial agreement is a contract entered into before marriage. The parties can agree on which assets and debts are personal and which are marital and identify them accordingly. The agreement should include how marital assets and debts will be divided, possibly preventing disputes during a potential divorce.  

Why Is a Prenuptial Agreement a Good Idea? 

Just creating the document can be beneficial. The two of you need to think about your financial lives and assets and your duties and rights during and after your marriage. These agreements may be particularly helpful if one or both parties have significant assets before the marriage, a well-paying job, or a business. One or both parties may feel more at ease if they know what will happen financially if the marriage ends in divorce, and the outcome will be fair and mutually agreed upon. 

If one or both spouses start a business during the marriage and it is not mentioned in the agreement, who ends up owning what can be determined by a contract made during the marriage (a postnuptial agreement), by amending the prenup, through negotiations during a divorce, or at a trial. The issue can also be part of a business ownership agreement covering what will happen if you divorce. 

What Effect Does Business Ownership Have on Equitable Distribution Without a Prenuptial Agreement? 

Consider what would happen if a marriage ends in divorce and one or both spouses own a business but there is no ownership, prenuptial, or postnuptial agreement. One spouse could argue it would be fair and equitable that they should get part ownership (if they do not already have it) and make the case for how much that should be (whether they own part or not.) The outcome would depend on how actively the spouse aided the business and what sacrifices they made so it could be a success, including contributing personal funds, working for the company, or sacrificing their career to help it. 

The fate of family-owned businesses can be a highly charged divorce issue. A prenuptial or other type of agreement would spell out how this would be handled and should prevent these types of conflicts from erupting. 

Karen Ann Ulmer, P.C., Can Help You With a Prenuptial Agreement 

Contact us if you have questions about a prenuptial agreement, want one created, or think you are being forced to sign one. For a confidential discussion with a Doylestown premarital agreements attorney at Karen Ann Ulmer, P.C., call (215) 752-6200 or email us. We can meet in our Doylestown or Langhorne office or speak with you by phone.

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I Own a Business, and I am Getting Divorced. What Will Happen? 

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Divorce outcomes are fact-driven. What will happen in your case depends on what is going on with your spouse, your business, and state law. We work with business owners to handle their unique situations fairly and protect their personal and business interests. There are “business owner gets divorced” horror stories, but your situation may be resolved so that the impact on your company is manageable (if not minimal) and you are able to start a new life. 

Part of the divorce process is the equitable distribution of assets, including determining which should be divided. After that, the judge decides whether a spouse is entitled to an asset (like business ownership, or at least part of it) based on their discretion and applicable law. Most divorce cases are settled through negotiations. Your spouse may accept other assets and/or spousal support in exchange for not pursuing claims related to your company. 

There are several factors in how your case may be resolved, including whether: 

  • You have an enforceable pre- or postnuptial agreement: Ideally, you both engaged with attorneys and worked out an agreement covering business ownership issues. If this is the case, the outcome may already be set. Time has passed, and with the benefit of hindsight, one or both of you may regret its terms. Unless both of you do not want to enforce the agreement and start all over again in the divorce process, how the issue will be handled has already been agreed upon. 
  • You have an unenforceable pre- or postnuptial agreement: There may be issues surrounding you or your spouse fully disclosing your business or financial situations and whether the agreement was voluntary. If your handwritten and mutually signed “contract” is not legally enforceable, it will not do you any good. Instead of contractual language, state law and its application to the facts will determine the outcome. 
  • You owned the business before your marriage, and your spouse has no ownership interest: Separate, personal property brought into the marriage is not subject to equitable division in divorce but any accrued value may be.   If your spouse had their own business or was fully occupied with their career and played no role in helping you or your business, they are not in a good position to claim they should be awarded partial ownership or part of its increased value during the marriage. Their claim becomes stronger if they gave up a career or spent substantial time and energy supporting you and your business.  
  • You started the business during your marriage: If the two of you co-own the company, hopefully, you have terms in a postnuptial or ownership agreement with a buy-sell provision that covers divorce. If so, it should state that in case of a divorce, one buys out the other’s interest with the price determined fairly and neutrally. Without an agreement, and if only you own the business, it can come down to whether your spouse helped you and your business, and if so, to what degree. The more your spouse sacrificed their life and career, the better argument they have to be awarded part ownership and/or a share of its increased value during the marriage 

The more organized, well-documented, and “by the book” you operate your business, the better off you will be in the divorce process. The more you run it by “the seat of your pants,” “under the table,” and engage in questionable practices to avoid taxes, the worse off you will be. You do not want to be in front of a judge insisting you are telling the truth if the evidence shows you are lying to the IRS. Credibility is critical if you cannot reach a settlement agreement with your spouse and your case goes to trial. Parties without credibility normally do not do well. 

Get the Help You Need From an Attorney You Can Trust 

The last thing you want is your marriage and your business to end at the same time. Whether you and/or your spouse 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. We can speak over the phone, via a teleconference, or meet in one of our offices in Doylestown or Langhorne.

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Hiding Marital Assets: Do the Numbers Add Up?

Divorce in New Jersey and Pennsylvania involves the equitable division of marital assets. If one spouse wants to keep more than their fair share, they may resort to hiding assets. This not only goes against family law and court procedures but, depending on the circumstances, could lead to criminal charges. So, how do you know if your spouse is hiding assets from you?  

We see the best and worst in divorces. Some couples understand they are no longer a good match. They amicably and respectfully work with each other and go their separate ways. On the other end of the spectrum are those who see divorce as a battlefield where rules don’t apply to them, and they will do all they can to come out ahead. These are the people who hide assets. 

What is Marital Property? 

Marital property includes the property either spouse acquires during the marriage or with funds earned during the marriage. It also consists of the increased value of non-marital or personal property up to separation. It is not always clear when an asset is marital because couples may mix personal and marital assets during the marriage. 

What is the Equitable Distribution of Marital Property? 

Part of ending a marriage is equitably, or fairly, dividing marital property and debts. This does not mean assets will be evenly split. Usually, part of negotiating this issue will involve alimony payments. One spouse may be willing to get fewer assets in exchange for higher alimony or vice versa. Pennsylvania statute spells out several factors to be considered when dividing marital property.  

Why Would a Spouse Hide Marital Property? 

The spouse may try to keep as many assets as possible by misclassifying marital property as personal or hiding assets, so the other spouse does not know about them.  

How Could a Spouse Hide Marital Property? 

Their efforts are only limited by the spouse’s imagination. It is easier to do if the spouse owns a business, the couple has a lot of assets, or the spouse manages the family’s financial matters. Some common ways to shield assets include: 

  • A spouse may try to move cash from personal to business accounts if they own a business. The spouse may try to delay large contracts until the divorce is complete. The company may create “ghost” employees who do not exist or bogus expenses or asset purchases. What would appear to be a business expense is transferring money into bank accounts controlled by the spouse. A business could also make a fake loan to an entity that is just a front for the spouse. 
  • Money and other assets could be transferred to family or friends.
  • A spouse may set up investment accounts and buy stocks or other investments in their name only and not tell their spouse. 
  • Physical assets like cars, artwork, or jewelry may be undervalued. If the other spouse accepts these estimates as accurate during the negotiation and the person keeps them, they are getting more value than they deserve. 

If your spouse has lied to you about other aspects of their life, the fact they are hiding property should not be a surprise. 

How Can We Find Hidden Marital Property? 

If you have worked on as many divorce cases as we have, you develop an awareness of how a less-than-honest spouse may operate. Hiring a forensic accountant can be a good investment if your finances are complex or a business is involved. 

Our most important information source is you. You can tell us about your family’s income, assets, and family-owned business. You can supply us with copies of documents establishing your family’s assets and your tax returns. 

During conversations with your spouse or while negotiating a divorce settlement, you need to tell us if what we are told does not make sense. There is no point in dealing with a spouse acting in bad faith. 

After the divorce complaint is filed, we can request information and documents from your spouse and their business. We can ask them questions during a deposition. Information and documents we obtain could be sent to an accountant for analysis. 

Are There Penalties for Hiding Assets? 

If a spouse is violating court rules and orders, a judge could take action in response. They may order the offending spouse to pay a larger share of their assets than if they acted honestly and order that they pay for our investigation and attorney time spent uncovering hidden assets. 

The police could get involved if your spouse went so far as to commit crimes like forgery. If a spouse secretly makes money “off the books” without paying taxes, state and federal taxing agencies might be interested. 

If you have any questions about equitable division or believe your spouse is hiding assets, please contact us here at Karen Ann Ulmer, P.C. We can discuss this and how we can help you through the divorce process.  

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Divorce and Your Parents’ Money: Does Any Belong to Your Spouse?

With divorce comes the equitable (or fair) division of marital property (property acquired during the marriage). Generally, assets owned by a spouse’s parent are not considered marital property, so your spouse should not have a valid claim to them. But this is divorce law, so there are possible exceptions that may make your case complicated. 

How Would Equitable Division Impact Past Trust Payments or Gifts? 

Clarifying which property is marital and what is not is spelled out in Pennsylvania statute (35 Pa.C.S.A. §3501(a)). Under the law, generally, property that is a gift from your parents, directly or through a trust fund, would not be marital property as long as you treat it as separate, personal property:  

  • Non-marital property: You put it in a bank account with your name, your spouse cannot access it, and you spend it for personal reasons. You buy yourself a car with it or spend it on furnishing your home office. 
  • Marital property: It is in a joint account, used to purchase marital assets or to pay ordinary marital expenses. 

Also not marital property is money you manage for your parents. If you are spending it to benefit them and your spouse has no access and it has not been used for marital purposes, that property belongs to your parents.  

How Would Alimony Impact Future Trust Payments or Gifts? 

The property you receive after your marriage ends is not marital. A spouse cannot have a claim on a future inheritance, trust fund payments, or gifts from parents you have not received yet as marital property. However, if your spouse is awarded alimony, you may need this future income to pay it. 

If you used commingled past trust fund payments and gifts and paid joint living expenses and property with it, they helped you establish your standard of living. If your spouse seeks spousal support or alimony and you agree to it, or a judge orders it if there is no agreement, one of seventeen factors is the standard of living the two of you established during your marriage.  

The fact that you improved your standard of living during your marriage by commingling trust payments and marital income may end up aiding your spouse’s argument that alimony should be paid. You may spend future trust fund payments on alimony, so indirectly, your spouse may end up with part of those future payments. 

Another alimony factor is the “expectancies and inheritances of the parties.” Alimony amounts can change in the future if there are “changed circumstances of either party of a substantial and continuing nature whereupon the order may be modified, suspended, terminated or reinstituted or a new order made.”  

A future inheritance is not marital property, but if you receive an inheritance so large that your circumstances have changed in a “substantial and continuing nature,” your ex-spouse could ask a court to obtain alimony or increase payments after that happens. Like trust payments, though a future inheritance is not marital property to be divided, your spouse may get some of it through increased alimony payments. 

On the flip side, if you receive alimony and after your divorce get the benefit of sizable trust fund payments, gifts, or an inheritance from a parent, your ex-spouse may ask a court that their alimony payments be reduced or ended because you no longer need financial support given this extra income you have received. 

Equitable Distribution and Alimony Issues Can Get Complicated. Let Us Unravel Them for You.

Contact Karen Ann Ulmer, PC, today if you are considering getting divorced and have questions or have decided it is right for you and need legal representation. Call us at (215) 752-6200 or fill out our online contact form. 

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How Much Should It Cost My Spouse to Buy Out the House?

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Equity in a home may be a married couple’s biggest asset. Before deciding what to do with the marital home in a divorce, you must find out how much that equity is and what the home would probably sell for if it was put on the market. Get professional help for this task. There is too much at stake to try to come up with some figures after a couple of hours of internet research. 

Why Does This Matter? 

The assets and debts of married couples are equitably divided in Pennsylvania divorce proceedings. If the couple has a house and a mortgage, who gets what is an essential part of the process. That starts with determining the home’s value and how much equity each party has.  

The home is usually a significant component of the overall agreement of how assets and debts are divided. If the parties cannot agree, assets and debts can be divided by a judge after a trial. This is the most time and resource-consuming way to resolve the issue, which is why it is the route of last resort if the parties cannot agree. 

This does not matter if the house is not marital property subject to division. It may have been owned by one spouse before marriage, though the other spouse may make a claim to its increase in value since the marriage began.  

The parties may also have a premarital or prenuptial agreement spelling out who will get the home in case there is a divorce or a formula to determine an amount. A prenup may also spell out the amount that one needs to pay to buy out the other’s interest. 

Another option is selling the house. After the mortgage, liens, taxes, and costs are paid, the profit left over is part of the cash the two of you will divide. 

What is Home Equity? 

Appraised Value – (Balance of Mortgages + Liens) = Home Equity 

The higher the appraised value and the lower the balances for your mortgage and liens (if you have any), the more home equity you have. The two of you should agree on a professional appraiser to determine the appraised value. Each of you could hire your own, and the result may or may not differ, but no matter the outcome, the cost is double that of just hiring one. 

Avoid a do-it-yourself appraisal. Unless you are a trained professional, you do not know what you are doing. Properties you think are comparable may not be, and you may miss properties that genuinely are similar. This approach could cost you far more than the money you save by not hiring an appraiser. If you are buying out your spouse, you may come up with an inaccurate value that is too high, or if you are the one receiving money or other assets, your figure may be too low. 

The spouse buying out the other should hire a home inspector. That extra pair of educated eyes could find hidden problems impacting the value. It is better to learn about them sooner than later. 

How Will I Pay to Purchase My Spouse’s Interest in the House? 

There are different options. If none are feasible, you will not be able to buy your spouse out. As much as you may want to keep the house, if you can not afford it, you must move on. 

The simplest way is to pay cash, but not many people have that much in reserve. You could refinance the mortgage, but interest rates are up, and qualifying may be difficult. You would pay off the existing mortgage balance through the refinance and use the equity to pay the other spouse. If your application is accepted, your monthly payment may be more than what you pay now. 

Another option might be that the other party will accept payments over time, and the property title changes after the last one is made. This will require a written contract, and both sides will want to protect their interests if, in the future, the paying party cannot afford full payments or complete the deal within the specified time frame. 

Because all marital assets are subject to equitable division, one way to buy out your spouse is to transfer or give up your claims to other assets. Read our blog article I Want to Buy My Spouse Out of the House for more information.

If you have any questions about what will happen with your home after a divorce or need legal representation, please contact us here at Karen Ann Ulmer, P.C. We can discuss how this may play out and how we can help you through the process. 

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I Want to Buy My Spouse Out of the House

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If you and your spouse are divorcing and you own a home, you have some options. If you want the property, you will need to pay your spouse for their equity share. One way to accomplish this is to trade assets or property as part of the divorce process.  

Splitting up your debts, assets, and possessions fairly and equitably will be part of your divorce. It can be very contentious, but ideally, the parties should consider this a business transaction. The two of you will start a new personal life, and to accomplish that, you will need to split your financial lives in a way you can both accept. 

You can reach a resolution or litigate the issue and have the judge decide. If that is where the case ends up, you will give up controlling the outcome, which will cost you more time, energy, and money.  

How Can I Make This Work? 

If you prefer to live in your marital home, you will need to pay your spouse for their ownership interest. 

Often during divorces, the spouses agree and disagree on a mix of assets. You could offer your spouse something that is clearly yours and give up your rights to assets that are contested. Consider the following scenarios: 

  • The two of you have $100,000 in home equity. To buy out your spouse’s $50,000 share, you could give up your $50,000 interest in a joint investment account or a 401k. 
  • You are claiming spousal support. You may give it up or reduce it in exchange for your spouse’s home equity.

Ideally, your spouse will be open to swapping assets to cover their home equity, and it will be enough to cover the whole amount. If that is not the case, you could pursue a cash-out finance but keep in mind the following:

  • You would refinance your mortgage, but in your name only. 
  • This is only an option if you qualify for the loan and can afford the new monthly payments, which will probably be higher than what the two of you now pay. You are also subject to the going loan rates, which are going up and down. 
  • If you are the sole owner, you must also be able to afford all the other costs that come with home ownership, such as taxes, utilities, maintenance, repairs, and insurance. 
  • The refinance gives you access to the home equity, which you can use to pay your spouse.

Given the number of divorces, this is nothing new for mortgage companies. However, if this is your first divorce, it is new to you. Refinancing a mortgage during a divorce will probably involve substantial potential financial liability, so this should not be decided upon quickly without advice from an attorney. 

What Could Be My Plan B? 

As much as you want the house, depending on your post-divorce income and assets, buying out your spouse could make you house-rich and money-poor. You may end up with not enough money to go anywhere or do anything, and being one major house repair away from living on credit cards. Your spouse could buy you out, or the two of you could sell the house and split the profit. The money you receive could be your down payment on a more affordable house.  

Who Will Own Your House is Just One of Many Issues 

If you are considering getting divorced and concerned about where you’ll live afterward, contact us here at Karen Ann Ulmer, P.C., so we can answer your questions and discuss how we can help you.   

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Student Loan Debt and Your Divorce

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When it comes to dividing things during a divorce, you may think about assets like investments or real estate, but you may also need to split your debts. Depending on what they are and how much, avoiding getting stuck with your spouse’s student loans may be a bigger financial win than obtaining an investment account or car. 

Americans have about $1.5 trillion in student debt, according to NBC News, so it should not be a surprise that one or both of you have these loans. Payments may be in the hundreds or thousands of dollars each month. Unless you qualify for a program to make your payments or forgive your loans, not even bankruptcy can wash away your liability. 

Usually, the spouse taking the asset takes on the loan paying for it. If you get the car, and it is not paid off yet, you are responsible for the car loan. But education is not a tangible asset. It is a service. You paid for someone to educate you. Part of the plan was probably that your education was an investment that would lead to a higher income than if you went without.  

Depending on your finances, debts, and professional and personal lives, these divorce issues could be very complicated. The more money at issue, the greater your need for an attorney’s help because there is more at stake and more to lose. 

Is the Student Debt Subject to Equitable Distribution? 

The first step is determining if the student loan is a marital or a non-marital debt. If it was incurred during the marriage, it is a marital debt. If the debt arose before the marriage or after your separation, it is a non-marital debt and not subject to equitable distribution (to split fairly amongst the parties depending on the facts of the situation). 

Marital debts are generally subject to equitable distribution. That could mean both parties are equally liable, only one is responsible for the debt, or what they must pay is somewhere in between. 

Issues a Judge May Consider 

Student loans are personal to the spouse receiving the education. The student loan’s benefit is usually obtained by the spouse getting the education. But a student loan could cover living expenses for both spouses. If the other spouse benefitted from the education because of a higher household income, they might be partially responsible for paying it back.  

If the debt is greater than any income increase or the spouses were economically independent of each other, requiring the other spouse to help pay the debt would be unfair. If a spouse is attending college full-time or enough to impact how much the two earn, often the other spouse will have more, if not all, of the burden of earning an income. That may mean shelving their plans for additional education or starting a business, impacting them financially. It would not be equitable for that person to bear these burdens, plus make student loan payments. 

What Is on the Paperwork? 

Whose name is on the loan? If you and your spouse took out the loan together so one of you could attend grad school, both of you are on the hook. If your name is not on the paperwork and you did not co-sign the debt, it is easier to say it is not yours. 

If you co-signed a loan, things get complicated. When you co-sign, you are only responsible if your ex defaults or stops paying for the loan. You would like to think that would only happen if payment is, as a practical matter, impossible. But it can also occur if the debtor stops paying and spends their money elsewhere. The creditor may decide it is easier to get payments from you than pursue your ex. 

You also may have consolidated student loan debt by using a home equity line of credit (HELOC). If your name is on the debt, it is half yours. If the amount is substantial and primarily for your spouse’s education, you may be responsible for paying it.  

The Big Picture 

Like all disputes arising in a divorce, the issue will be litigated if the parties cannot agree, making a resolution far more costly and time-consuming. Couples need to inventory their assets and debts, determine which are personal and which are marital, and come up with a way marital assets and debts can be fairly spread among them. Both sides will probably get a mix of debts and assets. Student loans are just one piece of the puzzle. At Karen Ann Ulmer, P.C., we know how to protect our clients from unfairly taking on debts. Contact us today to see how we can help you.

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High-End Assets and Your Divorce: Who Gets What?

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Distributing assets as part of a divorce can be highly contentious. Emotions are often connected to objects and property. One party may not be able to bear the thought of not having something, or worse, the spouse getting it. Who gets what is best handled like every other divorce dispute: as calmly, professionally, and reasonably as possible. However, too often, that’s easier said than done. 

If you have highly valuable assets, like investments, art, automobiles, or real estate, the process is more complex because their value, which can be disputed, must be determined. You also need to determine the tax impact on a party obtaining an asset. The higher and more complex your income, the more difficult this may be. 

But the same laws about property division will cover you and your spouse whether you have a million or a thousand dollars in the bank, a vacation home in Hawaii, or a ten-year-old camper trailer.  

What’s at Stake? 

Marital property is subject to division, nonmarital property is not. Generally, marital property is acquired by either party during the marriage. It also covers the increased value of nonmarital property. Clarification of which property is what is spelled out in Pennsylvania statute (35 Pa.C.S.A. §3501(a)). In divorces with high-end assets, the stakes are greater when deciding which category applies to property. 

How Would Assets Be Divided? 

Under state statute (35 Pa.C.S.A. §3502(a)), the general rule is that if one or both parties request it, the judge will: 

“…equitably divide, distribute or assign, in kind or otherwise, the marital property between the parties without regard to marital misconduct in such percentages and in such manner as the court deems just after considering all relevant factors. The court may consider each marital asset or group of assets independently and apply a different percentage to each marital asset or group of assets.” 

The relevant factors include: 

  • How long the marriage lasted 
  • Whether either party was married before 
  • The health, age, “station,” source and amount of income, job skills, employability, liabilities, and needs of the parties
  • Whether one party contributed to the training, education, or improved earning power of the other  
  • Each party’s opportunity for acquiring capital assets and income in the future 
  • The parties’ sources of income, including different insurance policies and other benefits 
  • Each party’s role in the acquisition, preservation, depreciation, or appreciation of the property, including a party’s contribution as a homemaker 
  • The standard of living developed during the marriage 
  • The parties’ economic circumstances when the property is divided  
  • The tax impact of distributing or dividing an asset  
  • The cost of selling, transferring, or liquidating an asset  
  • Whether a party will be the custodian of a dependent minor child 

Some of these factors may be critical for you, while others won’t matter. Each case is unique. 

Negotiation is Usually Better Than Litigation 

Like all divorce issues, if you can’t reach an agreement the issue can be litigated, and the court will decide. Negotiation, and failing that – mediation, gives you some control over how the assets are handled. You give that up when the judge makes the decision. 

Negotiation of asset division is often linked with other issues like paying or receiving alimony. You may give up your claims to some assets in exchange for higher alimony or a greater share of liquid assets. For instance, if you choose to walk away from a valuable asset, perhaps your spouse will now pay the entire amount of the cost of your kids’ private and college educations, instead of splitting the cost. 

Selling an asset may be better than a drawn-out tug of war, especially if it has appreciated over time. Starting your life over may be more difficult when your assets are tied up emotionally with your spouse. Maybe taking the money and running are better ways to begin again. 

If you’re thinking about or plan to divorce your spouse, asset division is one of many things you must consider. Contact us here at Karen Ann Ulmer, P.C., so we can answer your questions and discuss how we can help you. 

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How Will Your Divorce Impact Owning a Business?

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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.

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Divorce Forms

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There are a number of forms required to be submitted to the court in the course of a divorce where a claim for equitable distribution of marital assets has been raised. An Inventory and Appraisement form has each party identify all the assets and debts at issue in the case. Values or balances at the date of separation should also be disclosed. The form distinguishes between marital assets and assets an individual may be claiming as non-marital. Any assets identified as non-marital should include an explanation as to why they should be categorized as non-marital. For debts, the creditors should be named along with the nature of the debt. Finally, the Inventory asks parties to identify any assets that have been sold or otherwise transferred.

An Income and Expense statement has each party provide detailed information on their present income and ongoing expenses. With respect to income, frequency of payment and taxes or other deductions from gross income should be disclosed. There is a separate form for self-employed individuals whose calculation of income can be less straight-forward. With respect to expenses, parties should identify if it is a monthly, quarterly, or annual expense. Additionally, parties can mark whether the expense is an individual one versus an expense incurred for their children and/or spouse. Both of these forms help in demonstrating standard of living established during the marriage and financial circumstances of the parties as they separate to assist the court in making support and/or equitable distribution awards.

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