When it comes to divorce, Pennsylvania business owners know how much is at risk during the division of marital assets. Whether the couple are co-owners or if one helped fund the business or contributed in non-financial ways, commingled assets obscure the line between shared and separate property.
As Pennsylvania is an equitable distribution state, the courts will determine a fair but not always equal division of both assets and debt between the two parties, taking into account:
- Income and liabilities.
- Length of the marriage, age and health of spouses.
- The financial capacity of each spouse.
- Pension or retirement benefits and tax consequences in property division.
A divorce can also play havoc with business as usual, especially when court appearances, business evaluations and measures to stabilize the company during this time impinge on daily operations. Business owners in State College will want to develop effective strategies to protect their interests during a divorce proceeding.
Keeping things running during the divorce
Minimizing financial risk to the business is a priority, and the best way to do this is with accurate recordkeeping and a view toward keeping personal and business finances separate. Some tips that will help minimize as much commingling as possible include:
- Keeping accurate records of sources of contributions to prevent allegations that marital funds contributed to the business.
- Keeping business and personal expenses clearly separated not only demonstrates the credibility of the figures, but also makes the work of attorneys and accountants more productive and less costly when conducting business evaluations and appraisals.
- Not declaring too little in income, especially when it does not compare competitively with industry norms, or if personal expenditures are noticeably higher than reported income.
Being proactive could help
They say hindsight is 20/20, and this is especially true when it comes to marital agreements. A pre- or postnuptial agreement would eliminate much of the potential liability to the business by laying out what portion of the business is off limits during divorce, especially if the business owner started it before the marriage.
A marital agreement will clarify what portion of the increase in value of the business during the marriage may go to the nontitled spouse. Even if this spouse holds a position or is a shareholder, such a document would clarify what share of equity they may have.
Being prepared for the disruption the divorce will cause to operations and taking steps to minimize its effect are essential for the long-term viability of the business.