Is Your Business Separate Property?
Pennsylvania is an equitable distribution state, and marital assets will be divided fairly and equitably rather than equally. Whether your business will be subject to division during your divorce will depend on if it is marital or separate property. While separate property includes the assets you acquired before your marriage, marital property includes the assets you purchased after your union.
However, a business that you started before your marriage may be considered marital property if it became commingled. Assets can be commingled if:
- Your spouse contributed to your business’ growth or upkeep by helping financially or using their time and skills.
- Money from the business benefited your marriage.
- Business income and assets are commingled with other marital assets.
How to Protect Your Business During Divorce
Drafting a prenuptial or postnuptial agreement can protect your business (and other important assets) in the event of a divorce. If you do not have a marital agreement, you can also protect your business by:
- Negotiating your divorce settlement. Divorce mediation is a common option business owners employ to protect their business. If you and your partner can agree on the terms of your divorce and file uncontested, you can negotiate a settlement in which you receive your business. While you may have to compromise and lose other assets, you can retain ownership of your business this way.
- Limiting your spouse’s involvement in the business. To avoid commingling assets, you can limit how much your spouse contributes to the business’s upkeep and growth.
- Keeping business and marital funds separate. Your business can become commingled if you mix marital and business funds. Keeping separate accounts and detailed records can help ensure you protect your business from division.
- Paying yourself a salary. Rather than use business accounts to cover your expenses, you should pay yourself a salary; that way your spouse cannot claim you kept funds from them during the marriage, and you will not have commingled your business.
How Are Businesses Valued During Divorce?
Whether your business is separate or marital property, you should have the business valuated so that you have an accurate idea of its worth. Having a clear picture of the business’s worth can help you or the court fairly divide your assets and debts (in negotiations or court).
You and the other party can retain a forensic accountant or appraiser to conduct a business valuation. The accountant can review tax returns, cash flow, real estate values, the business’s performance, and more to determine the business’s value. You should not try to conduct a valuation yourself as a business valued higher or lower than its actual work can affect property division determinations.
How Might Your Business Be Divided?
If your business is a marital asset and the court is settling your property division, they will consider a host of factors, including:
- How involved each party is involved in running the business
- The value (such as experience, qualifications, and customer relationships) each party contributes to the business
- Each party’s ability to earn a living outside of the business
- Each party’s separate and marital assets
In dividing your business, they may award either spouse the business or require the business owner to buy out the other party. In some cases, they may award both parties a share of the company.
Contact Our Firm Today
At William Kirby Law, Family Law Attorneys, we understand how important your business is, and we are here to help you protect your interests during your divorce. Our attorney can help you negotiate a settlement with your spouse or understand how the courts may rule in your case.
To retain our divorce services, call us today or reach out online.