If you own a business and are getting divorced, your business could be a factor during property division. This is a process that can be confusing for a lot of people. You’ll have to schedule a business valuation to determine the business’s value, which can affect how you and your ex split your property – or how a judge determines you’ll split the property.
Factors Considered During the Valuation of a Business
Valuation of a business involves several factors, including financial elements of the business. This includes how much the business owes in debts, the business’s assets, the business’s yearly income, and more. You may have to use a specific formula to determine the business’s value. While there are a number of formulas out there, the two most common are as follows.
- Book value method: based on assets and liabilities
- Earning/market approach method: based on the market value and/or earning capacity of the business
What Happens After a Business Valuation?
You and your ex will have to determine what will happen to the business. A judge may step in and decide for you if you cannot reach a resolution.
Washington State uses community property law. This means that all things acquired over the course of marriage are the joint property of both spouses, regardless of whose name is on the title.
If you acquired or started the business during the course of your marriage, the business is the joint property of both spouses. In some cases, the business may be community property even if you opened or acquired it before your marriage. This might be the case if your ex helped build the business, for example.
As such, divorce property division for a co-owned business usually goes one of three ways.
- If separating on amicable terms, the couple can decide to retain their own halves of the business and continue operation as normal.
- One party can buy the other’s share of the business.
- The couple can sell the business entirely and split the profits.
As a note, division of property during a divorce does not have to be equal, but must be just and equitable. For example, a judge may determine that one party should be allowed to keep the business entirely, but the other party is allowed to keep the couple’s house. Much will depend on what the business valuation reveals.
An Attorney Can Help Ensure that Property Division is Just
If you’re negotiating with your spouse over how to divide property in the event of a divorce, an attorney can provide legal insight and advocate for what’s fair and just for you. At the Law Offices of Molly B. Kenny, we’re ready to get to work today. Call 425-460-0550 now.