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What happens to a family business in divorce?

On Behalf of | Oct 25, 2023 | Divorce Law

Dividing property frequently comes to the forefront in a Pennsylvania divorce. People will understandably view that from the perspective of items they have accrued as a couple. That includes a marital home, joint bank accounts, investments, automobiles and collectibles.

However, some people have a business that could be a major topic for dispute as the case proceeds. It is imperative to think about how a family business will be dealt with as the process moves forward. Dividing a business is akin to dividing other forms of property under the law, but it is also wise to be prepared for the potential areas of nuance that come up regarding a family business and know how it can impact the outcome.

Know how property is divided in a divorce

Pennsylvania is an equitable distribution state regarding marital property. This differs from community property states in that equitable distribution seeks what the court views as fair instead of simply dividing marital property in half.

Marital property is that which was acquired after the couple was married. Separate property was owned by one or the other prior to the marriage. If a property was owned separately before the marriage but increased in value during the marriage, the increase could be categorized as marital property. This ties in with how a business might be split.

There are numerous factors that the court considers when dividing property. It will look at how long the couple was married; if they had been married before; their age, health, individual skills, job prospects, debts and needs; if either side contributed to the education or training of the other; sources of income; how much each side contributed to the acquisition or dissipation of property; how much the property is worth; the standard of living during the marriage; the financial situations when the property is to be divided; how much addressing the division of assets will cost; and if there are child custody considerations.

Many of these factors will be relevant when dividing a business. Both spouses might be involved in a family business in various ways even if it was already in existence and owned by one party prior to the marriage.

For example, if the business owner was free to run it while the spouse ran the household, took care of children and performed duties that might serve as a distraction to its operation, this could be categorized as a contribution to the business and warrant compensation when it is divided. It could be something like a retail store, an online entity or a professional practice.

If the business started after the couple was married, then it is even likelier that it will be subject to a more even split even if one person had the expertise in operating it. Many couples in this situation need the business to continue operation as a means of supporting themselves. With that, it might serve their best interests to forge a workable solution and negotiate a way to avoid a rancorous court case.

Dividing a business in divorce can be complicated

Regardless of when the business started, who owns it, who operated it and other factors, it is important for the spouses in the middle of a divorce to be aware of how the law addresses it as part of property division. This can be a major source of worry that both sides need to think about from the outset.

Having guidance that not only understands how the law works in these circumstances, but is entrenched in the Lancaster community and knows the landscape can be essential to handling a family business through a divorce.