3 ways a family business can complicate divorce proceedings

On Behalf of | Nov 13, 2023 | Divorce

Running a family business can be beneficial for everyone in a household. If spouses start the business together, their shared responsibility to the organization can be another source of spousal bonding. Both adults in a family could potentially work at the family business, giving them control over their schedules and a better standard of living.

If an individual decides to divorce despite owning a business with their spouse, they will likely face an assortment of challenges. Small, family-owned businesses tend to complicate divorce proceedings. What about a business can make divorce messier and more difficult for spouses to navigate?

Handling employment arrangements

If both spouses work at the family business, they may not be able to continue doing so throughout the divorce and after it. Therefore, there will need to be some very difficult conversations about who will continue working at the family business and who will need to start looking for employment elsewhere.

Deciding how much the business is worth

In a Washington divorce, spouses have to treat their resources acquired during marriage as marital or community property. In theory, each spouse may have a partial ownership interest in the company even if only one has their name on the business documents. It can be difficult to establish how much the company is worth, as business valuation can occur in a variety of different manners. It will also be a challenge, in many cases, to reach an agreement about how much of that value is marital property and how much may be separate property that belongs to the spouse who started the business before the marriage or perhaps inherited it from family members.

Addressing its value during property division

Even after spouses have agreed on the portion of the business’s value that is marital and the estimated fair market value of the organization, they may still disagree about how to share that value. Someone seeking to keep the business after the divorce will likely not want to leverage the company to pay their spouse or liquidate resources that the company relies on to operate.

Spouses may need to look carefully at other property division matters to find assets that one spouse can retain to offset their share of interest in the company. Other times, spousal maintenance will help address the value of the business by giving one spouse access to a share of the profits it generates for a set amount of time in the future.

Many people have very specific wishes regarding their most valuable assets, including small businesses that they own and operate. Identifying those assets early in the divorce process and prioritizing the best possible resolution may help people minimize the negative financial impact of divorcing as a business owner.

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