Managing Family Businesses During Divorce: Legal Considerations for Business Owners
April 24, 2025
Divorce is one of the most challenging experiences an individual can go through. When business ownership is involved, the stakes can be even more complicated. Family businesses often represent years of hard work, dedication, and significant financial investment. For business owners facing divorce, there are often specific challenges that you will need to address to protect your business.
At Iwanyshyn & Associates, located in Allison Park, Pennsylvania, we understand that divorce can be complicated. We’re here to help family business owners find ways to keep their businesses operational. In this blog, we outline how family businesses are treated during divorce and the steps you can take to manage your business interests.
Understanding How a Family Business is Treated in Divorce
When a couple divorces in Pennsylvania, all marital property must be divided equitably. Marital property generally includes any assets acquired during the marriage, which may include family businesses, depending on when and how it was established. Even if one spouse founded the business before the marriage, any increase in the business's value during the marriage could be considered marital property.
It’s crucial to determine whether your family business is classified as separate or marital property. This classification will influence how ownership and financial distribution are addressed. At our firm, we work closely with business owners to conduct a thorough assessment of the business and ensure its valuation is accurate, fair, and reflective of the efforts contributed by both parties.
Steps You Should Take to Manage Your Family Business During a Divorce
As a business owner going through a divorce, it can be overwhelming to think about how your family business will be affected. However, there are steps you can take to effectively manage your family business during this difficult time. Here are some tips and strategies that can help:
1. Communicate Openly and Clearly
Communication is key when it comes to managing your family business during a divorce. Be transparent with your spouse and keep them informed about the business operations, financials, and any decisions being made. It's important to have open and honest communication to avoid any misunderstandings or conflicts that could impact the business.
2. Seek Professional Guidance
Divorce can be complicated, especially when a shared family business is involved. Consider seeking guidance from professionals such as lawyers, accountants, or mediators who are experienced in family law and can provide valuable advice on how to protect and advocate for your business.
These professionals can also help mediate discussions between you and your spouse to come to a fair resolution for both parties. It's essential to approach these discussions with a level head and be willing to compromise to find a solution that works for everyone involved.
3. Accurately Evaluate Your Business
When managing your family business during a divorce, you first need to determine its value. An accurate valuation not only impacts the potential division of property; it guides decisions on whether the business will remain operational, be sold, or have its ownership interests transferred. Business valuation often involves analyzing financial records, past and projected earnings, assets, liabilities, and goodwill.
Since Pennsylvania follows equitable distribution laws, all marital assets will be divided fairly but not necessarily equally in a divorce. Without a proper valuation, one or both parties could end up with an unfair resolution, which could jeopardize the business's future. To protect your interests, work with a qualified financial professional and forensic accountants to help make sure the valuation process is meticulous and transparent.
4. Consider Your Option for Dividing Business Interests
Once you have accurately evaluated your business's value, you will need to determine the best way to manage your business during and after the divorce. There are several options available for dividing your business interests to meet Pennsylvania's equitable distribution requirements. These include:
One spouse buys out the other: One common solution is for one spouse to buy out the other’s interest in the business. This allows the business to continue operating under sole ownership while providing the other spouse with compensation via liquid assets, property, or structured payments. It’s important to negotiate terms that are feasible and fair for both parties.
Sell the business and split the proceeds: If both spouses agree that continuing the business is not viable, the best option may be to sell it and divide the proceeds. While this may seem straightforward, it can still be emotionally taxing if you and your spouse have built the business together. Selling can also take time, so it's important to consider your finances carefully.
Continue joint ownership: In some cases, couples may choose to continue co-owning the business even after getting divorced. While this requires a strong level of trust and effective communication, it can be a viable arrangement if you are invested in sustaining and growing your company. To make this work, we recommend drafting a thorough shareholder or partnership agreement that clearly specifies roles, responsibilities, and exit strategies.
5. Create a Plan for Moving Forward
Once you've determined the best course of action, create a plan for moving forward with your business post-divorce. This may include restructuring the ownership and management of the business, updating any legal documents and contracts, and establishing clear communication channels between all the parties involved.
It is also crucial to address any potential issues that may arise in the future, such as disputes over profits, decision-making power, or changes in ownership. This can be done through creating a detailed shareholder agreement or operating agreement. It may be necessary to seek professional advice from lawyers or financial advisors to protect all parties during this transition.
How to Protect Your Business Before Divorce
If you are a business owner considering marriage or already married, there are proactive steps you can take to safeguard your business against potential future complications. Some of the ways you can protect your business ahead of a marriage or divorce include:
Prenuptial or postnuptial agreements: A well-drafted prenuptial agreement or postnuptial agreement can specify how business ownership will be treated in the event of a divorce. These agreements provide clarity and can help avoid lengthy disputes.
Set clear business structures: Establishing the business as a separate legal entity, such as an LLC or corporation, can help keep your personal assets separate from your business assets. This can provide legal protections for your business and potentially simplify divorce proceedings.
Keep your finances separate: Maintain clear boundaries between your personal and business finances. Avoid using joint marital funds for business expenses unless you intend to share ownership of the business. The more you can document and separate these finances, the easier it will be to argue that the business should remain separate property.
Shareholder or partnership agreements: If you co-own the business with others, consider implementing a shareholder or partnership agreement that addresses what happens in the event of a divorce. These agreements can outline buyout provisions or restrictions on transferring ownership to a former spouse.
Contact an Experienced Attorney Today
At Iwanyshyn & Associates, we believe that preparation, knowledge, and clear communication are key for preserving the value of your family business during a divorce. We take the time to understand your unique situation and develop tailored strategies to protect your rights, your business, and your financial future.
If you’re facing divorce and need help managing your family business, contact us today to schedule a consultation. Located in Allison Park, Pennsylvania, our attorneys serve clients in Cranberry Township, McKees Rocks, Beaver County, Butler County, and throughout the surrounding areas.