Corporate Successor Not Marital Property Following Post-Sep Business Failure
There is often suspicion when a business that would be marital property fails shortly after marital separation, particularly if the owner spouse subsequently starts a new business. This is the situation that the Superior Court addressed in its recent opinion, Weisman v. Weisman, Nos. 1471 EDA 2014 (July 14, 2015), a non-precedential decision.
Husband was the founder of PRN Healthcare Services, a company that provided skilled and non-skilled nursing care in Montgomery County. The company was created during the Weismans’ lengthy marriage and prior to their separation in 1999. Shortly after the marital separation, PRN defaulted on its business loan, which was secured by the marital residence, resulting in its foreclosure. As PRN was winding down its operations, a white knight (Reliance Home Healthcare) was formed by a third party, who hired Husband and assumed many of PRN’s accounts. Wife argued that, as in Gioia v. Gioia, 555 A.2d 1330, 1334- 35 (Pa. Super. 1989), her husband’s interest in a corporate successor was a marital asset.
In this case, however, Husband did not own an interest in Reliance and denied that it was a successor. The trial court agreed after hearing extensive testimony and evidence. On appeal, Wife argued that Reliance must be a successor because it became immediately profitable despite its owner’s complete lack of experience, that PRN’s employees and accounts were responsible for the success of Reliance, and Reliance traded on the goodwill of PRN by using its phone number and advertising its years in business.
The Superior Court refused to overturn the trial court’s findings, stating that Wife’s appeal was merely an invitation to reconsider the credibility of Husband and other witnesses. Interestingly, the Court remarked that “an expert report on the valuation of PRN—in particular its goodwill or going concern value—would have been useful to the trial court and to this Court in assessing the legitimacy of Appellant’s claim.” It’s not clear what impact such evidence might have had, if in fact the company had had transferable goodwill prior to separation, but perhaps husband might have been found guilty of dissipating a valuable marital asset.
Divorces involving privately-held businesses are some of the most complex and interesting cases that come before the family court. Pollock Begg has assembled a team of lawyers with experience in handling complex divorces for business owners and their spouses. Make an appointment to meet with one of our partners today.