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Business valuation in a divorce

Divorce is prevalent in Pennsylvania, the way it is in every other state. In 2016 alone, over 33,000 divorces and annulments took place, according to data from the Pennsylvania Department of Health

The court divides numerous marital assets during a divorce, and for couples who own a business together, that includes the company. In divorce, there is the concept of the equitable division of assets. This does not necessarily mean equal division, but means both spouses receive items totalling an appropriate value. When a business comes into play, the court needs to perform a valuation first.

How is a business valued?

First, a court needs to determine whether a business even counts as marital property. For example, if one spouse opened a business prior to the marriage, then it would count as separate property up until the date of marriage, at which time any subsequent increase in value becomes communal. However, if a spouse started a business during the marriage with joint funds the couple shared, then it all would be a marital asset. In the latter, professionals need to determine the fair market value of the business. 

An objective third-party usually determines the value of the business. In many cases, this number is how much the business is worth if the owner were to sell it on that day. 

How can a couple who own a business together reach a compromise?

A couple may open a new company together in the hopes of making a good living. While it is an exciting prospect, it is also one filled with uncertainty. For instance, before starting a company together, a married couple should obtain an agreement stating how the business will become divided in the event of a divorce. While it is not something a married couple may want to think about, it is vital to prepare for the possibility. With an agreement in place from the very beginning, it will make the division of the business much simpler in case the couple ever divorces. 

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Law Offices of Catherine Cardozo, LLC
1147 Easton Rd.
Abington, PA 19001

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