In Pennsylvania divorce cases, the courts divide marital property using equitable distribution principles. This means the court focuses on dividing marital property fairly, whether or not that involves a 50-50 split. Only marital property is subject to division in a divorce. Marital property includes most assets either spouse acquired during the marriage, even if they are in only one spouse’s name. Separate property, which includes assets owned before the marriage, inheritances, or gifts from third parties, usually stays with the original owner unless it was mixed with marital property.
In a high-asset divorce, business interests that qualify as marital property can become a major part of the property division process. Here’s what can happen to business interests in a Pennsylvania divorce.
Determining Whether a Business Is Marital Property
A business could be categorized as marital property, separate property, or a mix of both. The court will look at when and how the business was started or acquired to determine how to classify it. If one spouse started or bought the business during the marriage, it usually counts as marital property. If one spouse owned the business before marriage, only increases in its value that occurred during the marriage might be considered marital property.
The court will also examine whether marital funds or efforts contributed to the business’s growth. For example, if a spouse invested marital funds or worked for the business without fair pay, the court might treat that as a marital contribution. Even if the business interest is only in one spouse’s name, it could still be subject to division if the other spouse helped grow it or shared in its profits during the marriage.
Common Disputes Over Business Valuation
Business valuation often sparks disagreements in high-asset divorce cases. Disputes can arise over:
- Whether to consider personal goodwill, which depends on the owner’s skills, in the valuation
- Which method to use to estimate a fair value for the business
- How seasonal or unstable earnings affect the income levels used in the business’s valuation
- One spouse’s belief that the other is hiding assets or undervaluing property or inventory
- How to account for business debts or pending obligations that affect the company’s value
Strategies for Dividing Business Interests Without Selling the Company
In some cases, the most straightforward way to divide a business is to sell it and divide the sales proceeds. However, this isn’t always the best option if one or both spouses want to keep the company intact. One common alternative is a buyout, where one spouse purchases the other’s share using cash, other assets, or structured payments. Another option is to offset the value of the business by awarding the other spouse different assets, such as real estate or investment accounts, of equal value.
In some cases, spouses might even agree to continue co-owning the business after divorce, although this requires a high level of cooperation and a clear operating agreement. The right strategy depends on the business’s financial health, the spouses’ relationship, and their long-term goals.
The Tax Implications of Dividing Business Assets
Dividing business assets in a divorce can have significant tax implications. For instance, a buyout might trigger capital gains taxes if one spouse sells their interest for a profit. Transfers of business interests as part of a divorce settlement are generally tax-free at the time of transfer, but future sales could create tax obligations. Selling business assets to divide the proceeds can also result in capital gains or depreciation recapture taxes. Changes in business ownership can affect deductions, depreciation schedules, and even the business’s overall tax status.
Divorcing spouses must account for both immediate and long-term tax outcomes before finalizing any settlement. A seasoned divorce attorney in Pennsylvania can help couples plan for the future and avoid unexpected liabilities after the split.
Get Help from a Pennsylvania Divorce Attorney Now
High-asset divorce cases often involve complex financial issues, especially when a business is part of the equation. The sooner you address these issues, the more control you’ll have over the outcome. Contact The Law Offices of Dawn K. Gull today to discuss strategies for protecting your business interests in an initial consultation session.