Will a Business Lawsuit Impact My Divorce?

By Sheryl Rentz on December 15, 2022

Property division can be one of the most complex aspects of divorce. One factor that makes this issue more complex is that division of marital assets is not limited to the current situation. In Pennsylvania, the law allows for consideration not only of future benefits earned during the marriage, but also of future debts incurred during the marriage. A pending business lawsuit against a jointly owned business could significantly impact your divorce. For this and other reasons, an accurate business valuation is critical.

What If Your Business Has Filed a Lawsuit Against Another Party?

Pending lawsuits against other parties can complicate a divorce. Ideally, you and your spouse can reach an agreement on how to divide any settlement or award resulting from the lawsuit. If you cannot agree, the court will decide how the funds should be split. Pennsylvania is an equitable distribution state, which means that marital assets will be divided fairly, but not necessarily equally. The court will consider various factors in deciding how to split possible future proceeds from a business lawsuit, including:

• Dates of the marriage
• When the infringement that gave rise to the lawsuit occurred
• Whether the infringement is ongoing
• What portion of the damages is marital property

What Happens If Someone Has Sued Your Business?

The reverse is true when an outside party is suing your business. In the event the other party prevails, the lawsuit could represent a debt accrued during the marriage. Initially, the court will decide what portion of a potential negative judgment would be considered marital debt. Then it will decide how to distribute that debt between the spouses.

How Can Business Valuation Impact Your Divorce?

Business valuation is a process by which a certified appraiser determines the value of a business. For equitable distribution to occur in a divorce, the value of a business included in the marital property must first be established. This requires a comprehensive analysis of the business value, using proven methods, standards, and data. A clear analysis, backed by accurate data, can improve understanding, and help the parties move forward toward resolution.

How Does Business Valuation for a Divorce Work?

Business valuation is typically required to determine equitable distribution of marital assets. A divorcing couple may disagree on the value of the company, and the testimony of an expert witness may be required. Before proceeding with an appraisal, a certified business valuation professional must define a standard for the valuation. The two generally accepted standards for business valuation are fair market value and fair value. Although exceptions exist, fair market value may include discounts or adjustments for lack of marketability and lack of control for a non-controlling interest, while fair value represents a portion of the value of 100% of the business.

How Does a Pending Lawsuit Affect Business Valuation?

A pending lawsuit is important in a business valuation because the outcome of the case can impact the cash flow the analyst is relying on for the valuation. Potential benefits from a pending lawsuit (if your business has sued another party) constitute a contingent asset. For business valuation purposes, an expected settlement or award would normally be excluded from the benefits on which the conclusion of value is based.

If you are facing divorce with marital property that includes a closely held business, it is in your best interests to consult with an experienced Montgomery County divorce attorney as soon as possible. At the Law Offices of Sheryl R. Rentz, P.C., we have both legal and financial knowledge and a history of success for our clients. Contact us today at (610) 645-0100.