When you’re facing divorce as a business owner, your company—your livelihood—can suddenly feel like it’s on the line. Who gets what? Will your spouse walk away with part of your business? Will you lose control over something you built from the ground up?
Pennsylvania follows the rules of equitable distribution, meaning marital property, including your business, must be divided fairly, not necessarily equally. And if your business is considered a marital asset, the stakes are high.
At Schwartz, Fox & Saltzman, we represent high-net-worth individuals throughout the Philadelphia area navigating complex divorces involving business ownership. With over forty years of experience and a network of top-tier financial professionals, we help you understand your options, protect what you’ve built, and fight for an outcome that’s just.
Is Your Business Considered A Marital Asset?
In Pennsylvania, a business may be considered a marital asset depending on when it was started, how it was funded, and whether it grew during the marriage. Even if the business was established before you tied the knot, any increase in value during the marriage, especially due to shared income, reinvestment, or your spouse’s involvement, can be subject to equitable distribution. The court will look at whether marital funds were used, if your spouse contributed in any way, and whether any agreements like a prenup or postnup exist to protect ownership.
What Qualifies as Business Assets in a Divorce
Business assets include much more than a physical building, equipment, supplies, inventory or stock, cash on hand, and receivables. Business assets may include intangibles such as the goodwill, the strength of your brand, and the abilities or talent of your employees.
In addition to assets, a business may have liabilities such as a building or equipment lease, open lines of credit, loans, perhaps backed with a spouse’s personal guarantee and other debt.
How Business Assets Get Valued
Assessing the value of business assets is much more complicated than simply examining revenues and liabilities. An experienced high-asset attorney employs a forensic accountant to examine the business’s financial records, assets, and liabilities. We also consider the business’s reputation, stability, and potential for growth.
How Business Assets Get Divided in a Divorce
If the business is a marital asset, it must be divided fairly in an equitable distribution state. As part of the assessment of the business’s value, we consider the contributions of each spouse to the business. Is one spouse more involved with the day-to-day running of the business than the other? Is one spouse the “face” of the business, without whom the business brand would suffer? Did one spouse contribute more funds to start or expand the business, or invest family money in the business?
The answers to these and many other questions will help us determine what the fair distribution of the business value should be in your particular situation. Further, a business formed before the date of marriage may not be an asset of the marriage, but it could still have marital value, which the other spouse might share in.
What Happens to Business Debt in Divorce?
Just like business assets, business debts can be subject to division during a divorce, especially if they were incurred during the marriage or guaranteed by one or both spouses. This can include loans, credit lines, leases, and other financial obligations tied to the business.
If marital funds were used to repay any portion of that debt, or if one spouse personally guaranteed a loan, the court may consider it a shared liability. Proper valuation and documentation are essential to ensure debts are fairly accounted for during equitable distribution.
Options for Handling a Business During a Divorce
Once you determine and agree on how your business assets are divided, you have several options:
One Spouse Buys the Other’s Share
Buy-out is very common among business co-owners upon divorce. That said, a buy-out does not have to be a cash proposition in divorce. The spouse wishing to retain the business may give their spouse other marital property in exchange for complete ownership of the business.
Again, this entails a full financial assessment of marital property, which in high net worth marriages may include real estate here or abroad, recreational vehicles, boats, airplanes, art, jewelry, and collectibles. Be sure to consult with a high-asset divorce attorney who regularly works with accountants and appraisers in these areas.
Sell the Business
Unfortunately, selling the business may be necessary. We work hard to avoid this result as much as possible.
In this case, a high net worth divorce lawyer, together with appropriate financial professionals, helps us to value the business, identify potential purchasers, and close that transaction.
What Courts Consider for Dividing a Business
A family law judge in Pennsylvania considers the following factors, along with many other factors, when determining how a business should be divided in divorce and in assessing the couple’s proposed distribution of business assets in their divorce:
- Was the company in business prior to the marriage? If so, how long?
- Did the spouses own the business equally?
- Did one spouse contribute to the business with separate, non-marital money?
- Did one spouse give a personal guarantee for company liabilities?
- Was one spouse more involved in the business than the other?
- Is one spouse’s involvement essential to the success of the business?
- What sacrifices did one spouse make to allow the other to open or continue operating the business?
- Can other marital assets be divided so as to leave the business intact in the hands of one spouse?
How Prenuptial and Postnuptial Agreements Affect Business Division
A well-drafted prenuptial or postnuptial agreement can play a major role in determining how a business is treated during divorce. These agreements can clearly define whether the business is separate or marital property, how any appreciation in value will be handled, and what share, if any, each spouse is entitled to.
However, for a pre- or post-nuptial agreement to hold up in court, it must be fair, transparent, and properly executed. Without one, the court will rely on Pennsylvania’s equitable distribution rules, which may result in your spouse receiving a portion of the business or its increased value during the marriage.
Protecting Your Business Before Divorce: Steps to Take
Even if divorce isn’t on the horizon, it’s smart to take steps to protect your business from future legal entanglements. Taking action early can help ensure your ownership remains intact and reduce the risk of costly disputes later. Consider the following:
- Separate your finances: Keep business and personal accounts, credit cards, and records completely distinct.
- Form a legal entity: Establishing an LLC or corporation can help limit personal liability and clarify ownership.
- Use a prenuptial or postnuptial agreement: These agreements can define your business as separate property and outline how it will be handled in a divorce.
- Avoid using marital assets for business growth: Reinvest business profits instead of shared income to reduce the risk of commingling.
- Create a buy-sell agreement: This document outlines what happens to business interests if a partner divorces or exits the company.
- Keep thorough documentation: Accurate records of business contributions, income, and capital improvements will support your claims during property division.
Taking these precautions early can make a significant difference if divorce ever becomes a reality.
Talk with a High-Asset Divorce Lawyer
Your business is likely your largest marital asset, and how your business assets are valued and distributed in your divorce has a lasting impact on you, your family, and all of the other stakeholders in your business.
Consult with a high-asset divorce attorney to ensure your business is accurately valued, your goals for the business are realized, and you receive the distribution of marital property that is fair and just.