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Home > Business Valuation in a Pennsylvania Divorce: Consideration of Sale Costs And Tax Effect

Business Valuation in a Pennsylvania Divorce: Consideration of Sale Costs And Tax Effect

By Ashley B. Stitzer

September 2017

Valuation of marital assets is often a key dispute in divorce proceedings, particularly when a martial business is to be distributed. The Divorce Code does not provide a specific method for valuing assets and trial courts are given broad discretion when determining equitable distribution. However, the Pennsylvania Superior Court recently reiterated that consideration of the expenses and tax ramifications of a sale or liquidation of a marital asset is appropriate when awarding the asset in equitable distribution, regardless of whether a sale or liquidation of the asset was intended.

The Pennsylvania Divorce Code identifies a non-exclusive list of factors for the Court’s consideration when determining equitable division of marital property. Two identified factors are the Federal, State and local tax ramifications and the expenses of sale, transfer or liquidation associated with the asset. The statutory language states that the tax ramifications and sale, transfer or liquidation expenses “need not be immediate and certain.” 23 Pa.C.S.A. §§ 3502(a)(10.1) and(10.2).

Although the language in the equitable division statute provides that tax ramifications and sale expenses are relevant considerations, the statute does not mandate that taxes and expenses be deducted from the determined value when awarding an asset. When interpreting this statutory language, trial courts have determined the value of a marital asset without deduction of the tax ramifications and expenses associated with a sale or liquidation when there is evidence that a sale or liquidation is not anticipated.


Equity is best served by consideration of the tax effect and sale and liquidation costs when awarding an asset in equitable distribution regardless of whether a sale or liquidation is anticipated.


In a recent decision in Carney v. Carney, —A.3d —, 2017 WL 2952913 (Pa. Super., July 11, 2017), the Pennsylvania Superior Court reiterated that deduction of tax ramifications and sale expenses was the fair and just method for valuation of the asset even if a sale or liquidation was not contemplated in the divorce. In Carney, the trial court distributed the marital business solely to husband, without consideration of costs associated with a potential sale of the business, and then equalized the distribution to husband by requiring husband to compensate wife through interest free monthly payments. The trial court dismissed husband’s argument that the award of the business should be tax effected. The trial court reasoned that it was not required to apply a tax effect value to any of the marital assets because there was no evidence that the parties intended to sell any of the assets.

On appeal, the Superior Court reviewed its prior decision in Balicki v. Balicki, 4 A.3d 654 (Pa.Super. 2010), in which the Superior Court rejected the argument that expenses and tax ramifications associated with the sale, transfer, or liquidation of a marital asset are only relevant in an equitable distribution determination if a sale of the asset is likely because the argument violates the clear language in the statute that tax ramifications and sale or liquidation expenses “need not be immediate and certain.” The Superior Court noted the clear legislative intent to stop the practice of the lower courts analyzing the prospect of sale of an asset and that the assets simply be given the value they would have at distribution after deducting every expense necessary to achieve liquidation. Balicki, 4 A.3d at 64 (citations omitted).

Reiterating its reasoning in Balicki, the Carney Court observed that the trial court’s equitable distribution order provided husband with the entire business, which could not be converted to cash without significant expense associated with a sale process, while wife would receive monthly payments of cash without equivalent expenses. The Superior Court held that the trial court erred in failing to account for the costs associated with the potential sale of the business before assigning the asset to husband and remanded the case on the issue.

Thus, the Superior Court has made clear that equity is best served by consideration of the tax effect and sale and liquidation costs when awarding an asset in equitable distribution regardless of whether a sale or liquidation is anticipated. Indeed, if the assets were sold through the divorce proceedings, the parties would realize and share the tax and sale expense consequences. To find otherwise may provide a windfall to one party through receipt of tax free asset transfers in equitable distribution if the other party cannot realize the value of an asset transfer without sale expense and tax liabilities attached.


Ashley StitzerAshley B. Stitzer is a family law attorney representing men and women in all aspects of family law matters, including divorce, alimony/spousal support, equitable distribution and property division, marital agreements, child support and child custody. From custody disputes and support issues to complex divorce and property division, Ashley takes a direct, personal approach to resolving each client’s family law concerns and prides herself on being thorough, passionate and laser-focused on her clients’ needs. Ashley also has significant experience from prior practice representing businesses in corporate bankruptcy matters which she utilizes regularly in her representation of high net worth clients in divorce proceedings, including representations involving business valuation and employee stock ownership plans. If you’d like to schedule a consultation with Ashley, feel free to email her at [email protected] or call her at 610-840-0243