For many families, a business is more than just a source of income, it’s a legacy, a career, and a major financial asset. In Washington, which follows community property rules, a business started (or possibly even grown) during marriage may be subject to division in a divorce. This can create high stakes for both spouses, especially if the company is the primary source of family income or a significant asset.
Is the Business Community or Separate Property?
The divorce court maintains significant discretion to label, value, and divide community property which can create some complications in a divorce. The first step is to determine whether the business is:
- Separate property: Often presumed to have been acquired before marriage and maintained separately.
- Community property: Often presumed to have been acquired during or potentially significantly expanded during the marriage.
- Mixed property: A blend of both, where separate property contributions have been commingled with marital assets.
Even if the business was started before or using separate property only, the Court has the final say as to division of assets.
Valuing the Business
Business valuation is often one of the most contested parts of divorce for entrepreneurs. Courts may use:
- Income approach: Looking at the business’s earning potential.
- Asset approach: Measuring tangible and intangible assets.
- Market approach: Comparing to similar businesses in the market.
Independent financial experts are commonly brought in to determine a fair value.
Protecting Operations During Divorce
Divorce can disrupt day-to-day business operations if disputes spill into management decisions. To keep things stable:
- Avoid drastic financial changes to the company during the divorce.
- Keep thorough, transparent business records.
- Consider temporary agreements with your spouse to protect operations.
- Use professional valuators and accountants to minimize disputes if needed.
Options for Division
Courts usually try to avoid splitting a business in half. Common outcomes include:
- One spouse keeps the business and compensates the other with cash or property.
- Selling the business and dividing the proceeds (less common if the business is thriving).
- Co-ownership arrangements (rare and often discouraged due to ongoing conflict).
Steps to Take Before Divorce
Business owners can reduce uncertainty by:
- Creating prenuptial or postnuptial agreements.
- Maintaining clear records separating personal and business finances.
- Paying themselves a reasonable salary rather than reinvesting all income.
Legal Guidance for Business Owners
If you’re a business owner facing divorce in Washington, protecting your livelihood requires skilled legal and financial strategy. At Magnuson Lowell, P.S., we regularly represent business owners and their spouses in complex divorces involving companies of all sizes.
We offer free telephone case evaluations - 425-800-0573. Contact us today to learn how we can help you safeguard your business and move forward with confidence.
