Dealing with Small Business During a Divorce

For business owners, divorce presents unique challenges beyond personal and financial considerations. A small business is often one of the most valuable assets in a marriage, and it may be subject to division in a divorce. Protecting your business during a divorce requires careful planning and strategic decision-making to ensure its continued success.

Is Your Business Considered Marital Property?

In Washington, which follows community property laws, most assets acquired during the marriage are presumed to be divided fairly and equitably. A business started before marriage may be considered separate property, but if it grew in value during the marriage or if marital funds contributed to its operations, the Courts do have discretion to make alternate decisions. Determining whether a business is separate or community property requires a careful evaluation of financial records, business agreements, and investments made by both spouses.

Steps to Protect Your Business in a Divorce

If you are a business owner facing divorce, taking proactive steps can help protect your business from disruption and financial loss.

1. Get a Professional Business Valuation
   Determining the fair market value of your business is essential in any divorce involving a business asset. A professional business valuation considers factors such as revenue, profit margins, liabilities, market trends, and goodwill. This valuation helps ensure that the division of assets is fair and prevents disputes over the business’s worth.
   
   
2. Negotiate a Buyout or Trade of Assets
   If your spouse is entitled to a share of the business, you may be able to negotiate a buyout to retain full ownership. This may involve offering your spouse other marital assets, such as real estate, retirement funds, or investments, in exchange for their share of the business. This approach allows you to maintain control while reaching a fair settlement.
   
   
3. Establish Clear Business Records
   Maintaining clear and detailed business records can help protect your company from being unfairly divided. Keeping separate financial accounts for business and personal expenses, documenting all investments, and tracking financial contributions from each spouse can provide a clearer picture of ownership. If business records are incomplete, the court may rely on estimations that could lead to an unfair division.
   
   
4. Consider a Prenuptial or Postnuptial Agreement
   If you are already married, a postnuptial agreement can outline how the business will be handled in the event of divorce. If you are not yet married, a prenuptial agreement can protect a business from becoming community property. While these agreements must be fair and legally enforceable, they may provide clarity and prevent legal battles.
   
   
5. Understand Tax Implications
   Transferring business assets or selling a portion of a company during a divorce can have tax consequences. Capital gains taxes, business income taxes, and valuation adjustments can impact the financial outcome of your divorce settlement. Consulting with a financial expert or tax professional can help you minimize tax liabilities while protecting your business interests.

Consult a Washington Divorce Attorney Today
Divorcing as a business owner requires careful planning to ensure that your business remains protected and that you reach a fair settlement. At Magnuson Lowell, P.S., our experienced divorce attorneys understand the complexities of asset division and can help you create a strategy that safeguards your business. We offer free telephone case evaluations, so contact us today to discuss your situation and learn how we can help protect your livelihood.

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