Dividing assets during divorce can be tricky and controversial. It is even more complicated when a business is involved.
Will your spouse receive half of a business you founded and ran on your own? This is not a simple question. The court will weigh several factors in deciding if your spouse will receive any part of your business and, if so, how much.
Is my Business Community Property?
Washington is a community property state, so the court must first determine if the business itself is community property. This depends on when the business was founded and whether the parties used marital assets for the business. There are several potential scenarios.
If the business was founded during the marriage, it is community property. The court will then apply the "just and equitable" division standard to divide the business. Remember that "equitable" does not mean 50/50; instead, it depends on a number of factors, including the parties' financial situations.
If you owned your business before the marriage, and your spouse did not contribute to the business during the marriage, the answer should be simple – the business is not community property. Your spouse, however, will likely argue that they contributed either financially or by working for the business in some capacity, even if not as an employee. The court must then review these claims to determine if at least a portion of the business is community property. Even if a court finds that the business is separate property, it may still consider whether your spouse is entitled to some portion of it.
If you and your spouse both acknowledge spending marital assets on a business you owned before the marriage, at least some portion of the business will be community property.
How is Business Community Property Divided?
Once the court determines that business interests are community property, it must decide how to value them and divide them.
The court may seek to determine how much the business is worth with a valuation expert. The court will then assess the value of each spouse's contributions to the business (e.g., monetary contributions, labor contributions, etc.) in deciding how to split the value of the business.
As with real estate, one common solution is for one spouse to buy out the other's interests to avoid any messy issues with division of the business. The parties can likewise agree that a spouse who gives up their claims to the business will receive other assets of similar value. Reaching agreement without the intervention of the court will generally be the least costly and most effective method.
If your business is an issue in your divorce, you need the help of an experienced asset division attorney who can guide you through the valuation and division processes. At the Law Offices of Molly B. Kenny, we have decades of experience with many difficult divorce situations, including business valuation and high-asset situations.
To arrange a private consultation, call us today or use our online contact form to send an email.