When a married couple owns a business, that business can be considered community property. Like all assets in a Washington State, the business should be split between both spouses. But how does a divorce court divide up a business?
Valuing the Business
Before a business can be split between the spouses, the parties have to come up with its valuation. The value of a business is the sum of all of its parts: this can include the business’ real estate, furniture, equipment and electronics as well as the company’s products, raw materials, bank accounts, and accounts receivable. In addition, the value of the business will include the company’s goodwill, customer list, outstanding contracts, and any debts.
Usually, a couple that owns a business will need to use an accountant or other financial professional to accurately come up with a dollar amount. Once the value of the business is decided, courts will split up the business in one of the following three ways:
One Spouse Takes All
If one spouse was more involved than the other in running or managing the business, that spouse will usually receive the entire business in the divorce. When this happens, the spouse who does not receive the business will receive money or some other assets equal to a share of the value of the business. For example, if a couple’s business is valued at $100,000, and the couple’s house is valued at $100,000, one spouse may receive the business while the other receives the house.
The Business Is Sold
In some cases, a court may order the couple to sell the business and split the proceeds evenly. This can happen when neither person wants the business, or when both people want the business but there are not enough other assets to fairly compensate the other spouse. In most cases, the court will not order the sale of a thriving, profitable business. When these types of companies get caught in a divorce case, the two spouses will usually use mediation or another alternative process to work out a compromise.
Finally, some businesses are so profitable or important to a couple that the spouses will agree to continue operating the business together after a divorce. However, this situation is rare, and a court will not generally order two divorcing people to work together for the rest of their lives. This situation is more common when either the divorce is amicable, or when each spouse plays such an important role in the business that the company could not survive without either one.
If you and your spouse are thinking of divorce, but are unsure of how your business would be affected, the attorneys at Pacific Northwest Family Law can help. Through the use of mediation and collaborative law, our family law attorneys work to help divorcing couples maintain a cordial and agreeable relationship through the divorce process.
To discover how your business may be affected by divorce, contact us today by calling 360-926-9112 and set up an appointment.