Guidelines for Protecting Your Small Business During a Divorce

If you own a small business, the chances are high that this business is your most valuable asset going forward. The amount of time, money, and effort you’ve invested into growing your business are likely enormous. Like any large asset, your business needs to be protected. A divorce can have potentially devastating impacts on the success of your small business, which is why it is important to tackle this issue early and set yourself up for future success. Despite how common divorce has become, many small business owners get blindsided by a myriad of issues related to their divorce. Here are some tips on how to best protect your business in the case of a potential divorce or separation:

First, Understand Separate and Community Property

When considering protecting your assets and how your divorce may play out, you first need to understand separate and community property. Washington is a community property state, which means, generally, everything that was not individually protected previous to or acquired before your marriage will be considered community property and will be divisible (with some exceptions). This typically includes things such as businesses, real estate, tangible assets, the earnings of both spouses, etc. 

Community property also includes things like interest earned on investments, capital gains, and even retirement benefits. On the flip-side, separate property will generally be the funds, real estate, investments, gifts, inheritances, heirlooms, etc. that you own independently from your spouse. The general key is that all property acquired during the course of a marriage by either party (save inheritances), will be considered community property, even your business, and will be divided up in the case of a divorce. This is the main reason as to why you want to consider protecting your business sooner rather than later. 

Act Now, Don’t Wait

The best time to protect your business from a divorce is before you ever get married. As unromantic and awkward as it may sound, a prenuptial agreement is the best way to safeguard your assets from a potential divorce. Your next best option is a postnuptial agreement, which can be signed after marriage. Your business is considered an asset, and like other assets, a postnuptial agreement can define how you and your spouse’s assets will be divided in the unfortunate case that you need to file for a divorce.  These agreements determine how things like real estate, savings investments, and other assets will be divided if a breakup does occur. Judges tend to look more scrupulously at postnuptial agreements than prenuptial ones. Postnuptial agreements filed shortly before the individual whose assets needs protecting decides to file for divorce will be subjected to heavy skepticism by a judge and can be ineffective. For this reason, act as early as you can.

Think Twice Before Splitting Your Business

Due to the immense frustrations and stress that can accompany the divorce process, it is not uncommon to make in-the-moment decisions that are not in line with accomplishing one’s long-term goals for themselves or their families. A common mistake that is made for the business-owning individual is to agree to split their business 50/50 in an attempt to speed up the divorce process and avoid further confrontation in that moment. This is, in general, not a great idea. It is uncommon for a divorced couple to smoothly run a profitable venture together. Rather than splitting your business in two, consider allocating them other assets so that the total sum amount is divided fairly and your business can maintain singular ownership.

Hire an Attorney

If you or your spouse are contemplating a divorce and you own a business, you need to reach out to an experienced family lawyer right away. Each case is unique and your lawyer will understand the nuances of your case and the court’s jurisdiction. The more factors at play in a given case, the more complex this split can potentially be. Our attorneys regularly speak on family law, divorce and parenting plan matters.  

Elise has extensive experience in high-conflict parenting disputes.  If you have any questions about Washington state divorce law, mediation or child custody, please contact us at info@elisebuiefamilylaw.com or 206-926-9848.

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