Divorce is never simple, but for business owners in Washington State, the process comes with added complications. When your livelihood is tied to your business, protecting it during a divorce becomes one of your top priorities.
Community Property and Your Business
Washington is a community property state, which means that most assets acquired during the marriage are subject to division, even if one spouse didn’t directly contribute to the business. This includes:
- Businesses founded during the marriage
- Businesses started before marriage but expanded using marital funds
- Increased value of a business that was actively managed by one or both spouses during the marriage
If you own a small business, family-owned company, or are self-employed, the lines between separate property and marital property can easily blur. Even if you founded the company before your marriage, courts may still treat part of it as a business interest that is subject to division.
What Is Your Business Worth?
Before dividing a business in a divorce, the first and most critical step is getting a business valuation. This process determines the company’s fair market value, taking into account several factors such as cash flow, revenue streams, real estate holdings, equipment, intellectual property, debts, liabilities, and current market conditions. It also looks at the business’s future earning potential, which can significantly affect the valuation.
Because divorces involving business ownership are complex, it’s essential to work with a professional appraiser who specializes in business valuations for divorce cases. An experienced divorce attorney will usually recommend bringing in this type of expert to ensure your company is valued accurately, helping to protect your business interests and avoid costly disputes.
How Washington Courts Divide Business Assets
Once the business’s value is determined, you and your spouse have several options:
1. Buyout Your Spouse’s Share
One common option is for the primary business owner to buy out their spouse’s share. This can be done through a lump sum payment or an installment plan. Often, other assets acquired during the marriage, such as real estate or retirement accounts, are used to offset the buyout.
2. Sell the Business
In rare cases, couples choose to sell the business and divide the proceeds. However, this can be disruptive to employees, clients, and business operations. For many owners, selling isn’t an attractive solution unless it was already part of their post-divorce plan.
3. Co-Ownership Post Divorce
Some couples continue to co-own the business after divorce. This works best when both parties can maintain a professional relationship and agree on clear roles and boundaries. If this option is chosen, a detailed operating agreement should be in place.
4. Trading Assets
In some situations, one spouse keeps the business while the other receives equivalent assets. For example, your spouse may receive a larger share of the family home or retirement accounts, while you retain full ownership of the company.
How to Protect Your Business in a Washington Divorce
Planning ahead is the best way to protect your company. Here are strategies to minimize risk:
- Prenuptial and Postnuptial Agreements
These contracts can specify that the business is separate propertyand outline what happens to the business in the event of divorce.
- Separate Personal and Business Finances
Keep clear records of where the company’s funds come from. Mixing personal and business finances makes the business more vulnerable to division.
- Consistent Salaries
If your spouse works in the business, pay them a market rate salary to prevent future claims for additional compensation.
- Accurate Records
Document all financial transactions and keep thorough records to prove how the business was funded and operated.
Key Considerations for Business Owners
Divorcing as a business owner in Washington state isn’t just about who keeps the business. Courts also consider:
- Each spouse’s contributions to the marriage, including time spent as a homemaker
- Whether either spouse wasted assets, such as through lavish spending
- The financial impact of dividing the business on both parties’ futures
- The interests of the child if custody or support is involved
Washington courts aim for an equitable distribution of assets—not always an equal split. Judges prioritize fairness based on the couple’s specific circumstances.
Why Legal Guidance Matters
If you’re facing a Washington divorce for business owners, working with an experienced family law attorney is crucial. They’ll help you:
- Determine what part of the business is subject to division
- Negotiate a fair settlement
- Draft legal agreements to protect your business
- Navigate complex issues like real estate tied to the company, lump sum buyouts, or continued co-ownership
The right legal strategy can help you avoid unnecessary losses while securing a post-divorce future that allows your business to thrive.
If you’re ready to safeguard your business interests, contact a divorce attorney familiar with small business and high net worth divorces. Start planning today to make informed decisions that protect your future.