What Happens to My Business During Divorce?

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by Chris Torrone

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10.20.2021

Divorce is complicated enough on its own, but if you or your ex own a business, then it can become even more challenging to figure out how to protect your business assets. What happens if you and your spouse had a prenuptial agreement? What if you owned the business prior to the marriage? How can you best protect your business in divorce?

When you own your own business, then you need to make sure that you are protected in the event of divorce. You don’t want to lose your business because you didn’t think ahead. In this article, we will look at how to protect your business during a divorce.

woman worried about her business during divorce

How are Businesses Affected by Community Property Law?

Because Washington State has community property laws, businesses are subject to those laws. Typically, this means that your business or company is community property between you and your ex, and you’ll have to split the value of the business or professional practice 50-50 with them in equitable distribution. So rather than the court investigating whether your business should be deemed as separate vs. marital property, it is likely that a judge will simply decree that you split the business evenly after it has been valuated.

Even if you or your spouse started the business prior to the marriage, it is likely that the court will still decide in favor of community property laws. And even with a prenuptial agreement or a postnuptial agreement, the court will still review those agreements to verify if one party is at a disadvantage, if both spouses had full knowledge of their rights, and if the agreement was made voluntarily and with independent legal advice for both parties. What this means for your business is that even if your spouse had no dealings with your business, or your business was started prior to the marriage, or you don’t have an iron-clad agreement, the business is still a shared marital asset and your ex will still be entitled to half of the value of total marital funds.

This puts business owners in the difficult position of choosing to either liquidate their business in order to give their ex their legal share of the proceeds, or making a significant payment to their ex in order to keep the business after the marriage ends.

In the case of divorcees who legally co-owned a business, they are also limited to the above examples. If they find that they cannot work together after their divorce, or that their tension has a negative effect on the business, then they have to choose to liquidate or agree to have one person buy the other out. 

So, while you may not lose your business in a divorce, it can ultimately be very expensive to keep it. The value of the business as a source of income may be outweighed by the legal expenses required to keep it. This is especially true if you don’t work with a reputable lawyer and your ex coerces you into an unfair settlement. Working with divorce lawyers that are skilled in business or real estate law is vital.

Why It’s Not Just a Matter of Money

Often, when business owners face divorce in their personal lives, they may think that protecting their business is only a matter of money. But you also have to consider the industry your business serves and other areas that may need protection if you intend to keep your company.

How will you keep running your business during divorce? Who will manage contracts with customers and vendors while your attention is focused on the details of the divorce? Do you have a business partner you can rely on to keep things running? What interruption of services do you anticipate if you cannot give your business the time and attention you did prior to the divorce proceedings? How might that affect sales and customer relations? Will your business be the same if you’ve had to spend a significant portion of time away from it? These questions are all important to address if you choose to keep the business by buying out your ex. 

If the business was your primary source of income, then you need to think about how to protect your livelihood during and after your divorce. Involving divorce lawyers can help you make wise choices as you think about protecting your business assets, reputation, and future income after the divorce is finalized and the division of assets is determined by the court.

man worried about his business during divorce

What If Your Ex Is A Business Owner?

If your ex owns a business in Washington State, then the reverse is true; you are legally entitled to half of all martial property which includes their business. It is just as important for you to be informed of your rights, whether or not you also have ownership of your own businesses.

Getting all community property valuated is going to be important in order to get an accurate financial picture of their business as a marital asset. Some people may try to hide assets in their businesses, or undervalue them overall in order to reduce the total value of marital property. This is why it is important to have an independent expert manage the business valuation process to make sure that you both get what you are entitled to; an equitable distribution of marital property.

If you suspect that your ex is undervaluing their business or using it to hide assets, work with an experienced lawyer who has professional contacts with valuators, forensic accountants, and even private investigators. It should go without saying, do not try to use your own business to hide assets, or get a “friend” to do the valuation rather than go through a formal business valuation. These are criminal actions and will have serious ramifications on the outcome of your divorce settlement.

Always work with an experienced divorce attorney. An experienced family law attorney offers guidance and expertise which can help you make the best decision for your business and ensure that your best interests are served throughout the divorce process.

Torrone Law will work in your best interest and help you protect your assets in a divorce. You can schedule a free consultation with one of our family law attorneys to ensure that our services are the best fit for your legal needs.

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