When going through a divorce, emotions run high and the challenges for any family are numerous. The situation becomes even more intricate if the couple happens to own a family business. An important consideration in such cases is whether the family business is a valuable asset or a potential liability in the divorce. The outcome largely depends on how the business is dealt with during the proceedings.
In the state of Washington, the division of marital property is done equitably, meaning that the assets are divided fairly, though not necessarily equally. Thus, when it comes to the division of a family business, the court first examines whether the business is categorized as separate or marital property.
- Separate vs. Marital Property
Separate property refers to any possessions owned by one spouse prior to the marriage or acquired through gift or inheritance during the marriage, with the intention of keeping it separate. On the other hand, marital property encompasses assets obtained during the marriage, which includes any income or appreciation of separate property.
Should a family business be established before the marriage or acquired via gift or inheritance during the marriage with the express intention of it remaining separate, it will be considered separate property and will not be subject to division in the event of a divorce. However, if the business was initiated during the marriage or one spouse significantly contributed to the business during the course of the marriage, it may then be deemed marital property.
- Valuation of the Business
After understanding the categorization of the family business, the next step is determining its value. Typically, the court appoints a valuation expert who assesses various aspects of the business, including inventory, equipment, real estate, and intellectual property. This comprehensive evaluation allows for an accurate representation of the business’s assets and liabilities.
Once the value is determined, the court evaluates the contribution made by each spouse to the business. If one spouse was primarily responsible for owning or operating the business and the other spouse did not significantly contribute, then the spouse who was more involved in the business may receive a larger portion of its value in the final divorce settlement.
- Options for Division
In a divorce involving a family business, there are several possible options for dividing the business:
Buyout: In this scenario, one spouse can buy out the other spouse’s interest in the business. The buying spouse would need to compensate the selling spouse based on their share of the business’s value.
Co-ownership: Some couples may choose to continue co-owning the family business even after their divorce. This arrangement can work if the ex-spouses maintain an amicable relationship and are capable of working together effectively. To ensure the smooth functioning of the business, it is crucial to establish a clear agreement that outlines the responsibilities and authority of both parties.
Sale: If neither spouse desires to retain ownership of the business or if co-ownership is not feasible, selling the business may be the most suitable option. By selling the business, both spouses can fairly divide the proceeds according to the value of their respective shares.
- Conclusion
Divorces involving family businesses add an additional layer of complexity to an already challenging situation. To safeguard the family business during such a process, seeking guidance from an experienced attorney well-versed in family law matters is crucial. By working with a skilled legal team, you can ensure that your interests are protected and that your rights are respected throughout the divorce proceedings.