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How Can I Protect My Business During a Divorce?

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Posted By Cohen Family Law | November 10 2022 | Uncategorized

Divorce is almost always difficult and dividing property can be among the most contentious of issues.  When a successful business is involved, however, it can be even more so.  It can be difficult, or nearly impossible, to separate business from personal matters when the subject is the business you nurtured over the years to become the success it is today. This is when business gets personal. The business owner has a personal connection to the tangible and intangible assets of the company. The owner sees the company as a reflection of its reputation and ethics. The market and the public perception of the business and the owner are one and the same.

However, there are several steps you can take to protect your business as you prepare for divorce.

Maintaining Control of the Business

Washington is a community property state, the premise being each spouse has equal rights in the control and management of marital assets. However, in the case where one spouse is the active and primary operator of the business, then this spouse should maintain control of the business during the d.

There are circumstances where the non-operating spouse is involved in the business. Even though it is the expertise and the education of the operating spouse that made the business successful, the non-operating spouse may have the signature authority on accounts, may be named in the organizational documents and may be on the payroll. All these circumstances will come under consideration when the operating spouse positions for control during the divorce proceedings.

The premise of maintaining control of the business does not grant the operating spouse unilateral control over the operations or the assets. The non-controlling spouse remains entitled to receive actual notice of any sale, purchase or borrowing against any of the capital assets and of any change in the operations that will negatively affect the value.

The control of a private practice or an intergenerational family company is an easier hurdle to clear. It is relatively easy to prove that the other spouse did not have involvement or decision-making authority in these entity types.

It is important to remember that maintaining control of a company or a private practice does not remove the business from the community property within the marriage. Under Washington law, the responsibility of the controlling spouse to protect the assets of the other spouse remains. This holds true in cases where the business is considered partial community property.

The Preparation

The determination of the value of the business is an important source for the controlling spouse to maintain final control post-divorce. A CPA or a business appraiser will be able to assess the current value and the future earnings of the company. Any plans for expansion, for a change in the management, or the structure will be factors in determining the future value of the company.

The valuation is only one detail in the protection of the business. The other is to make sure the business affairs are in order and to retain an attorney certified in family law before the divorce suit is filed. It is always beneficial to aim for and maintain a position of offense when protecting a business during a divorce proceeding.

The appraisal of the business and other documentation to prove the controlling spouse as the rightful business owner are the best strategies. Preparation with a plan is key.

It is one thing to divide the marital assets that only involve the spouses. It is quite another when an operating business is within the community property. The livelihood of the employees is may hang in the balance during the divorce.

The intangible assets of a business, like goodwill, public perception, and a confident and secure labor base cannot be properly valued. The value of the business will be severely affected if these intangible assets are not considered.

The best strategies to protect a business during a divorce proceeding is to know the value of the business, be prepared and maintain an offensive position before the proceedings begin.

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