How to Deal With the Family Business in a Divorce

Dividing assets and debts is often the most complex part of a divorce. The longer you’ve been married to your spouse, the more things you’ve accumulated during your marriage. Making an inventory of every last asset and determining whether each asset is community or separate property can be tedious. 

Making matters more complex is the fact that some assets can be a mixture of community and separate property. Those same assets can have many different moving parts. There is perhaps no greater example of a complicated asset divorcing spouses must deal with than the family business

A Note on Community Property

Washington is one of nine true community property states. This means that nearly every asset obtained by either spouse during the marriage is considered to be equally owned (50/50) by each spouse. The implication for property division in a divorce is that, unless there are compelling reasons otherwise, community property will be divided equally in Washington state.

Family businesses can be a combination of community and separate property. Even if a spouse started the company prior to the marriage, it could become community property if the other spouse contributes time and/or money to the enterprise. So, before deciding on the method for dividing the business, ensure you know the status of the asset vis-à-vis community/separate property.

Quick note: when we use the term “family business,” we’re largely referring to closely held businesses and not large, publicly traded corporations.

Dividing the Family Business

Some couples are able to continue operating the business together after their divorce. However, this rarely works out in the long run (unless you’re Christine and John McVie from Fleetwood Mac). Common methods for dividing the family business during a divorce include:

  • Selling the business and splitting the sale’s proceeds.
  • Having one spouse agree to buy out the other spouse’s ownership interests.
  • Letting one spouse transfer ownership to the other spouse in exchange for another piece of community property or a portion of future profits.

Before you execute any of these methods to divide the family business, it’s important to get an accurate and up-to-date valuation from a financial professional. Otherwise, one spouse might get a raw deal for a purchase or sale of ownership.

Another important thing to remember is that it’s usually far better for you and your spouse to come to an agreement on property division (and other divorce-related matters) than to rely on a stranger to make those decisions for you. If you can bear to be in the same building as your spouse for a few hours, consider mediation as a way to work through your disagreements. 

In any capacity, at any venue, with any family law matter, McMahon Law Group would be proud to be by your side. Our experienced team is ready to guide you through stressful legal situations and help put you in a better place. Contact us to schedule a consultation today.

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McMahon Law Group

Legal issues of any type can be a frightening and overwhelming experience, and certainly something you don’t want to face alone. Attorney Jacque McMahon and the McMahon Law Group will work closely with you to ensure you not only get the best legal representation possible, but that you are well-informed throughout the process. If you are facing legal issues, please contact us to discuss your situation and get the help you need.

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