Divorce is challenging on its own, but when spouses are also joint business owners, the process can become even more difficult. Understanding how to handle both the emotional and financial aspects can make a significant difference in the outcome for both parties. How can business owners protect their interests during divorce?
Understand how the law treats co-owned businesses.
In Washington state, all property acquired during the marriage is generally subject to division upon divorce. This includes a business started by either spouse during the marriage. Understanding this legal framework is the first step in navigating a divorce involving a joint business.
Consider your options.
When spouses own a business together, they usually have three choices if they divorce:
- Buyout: Often, one spouse buys the other’s share. This often requires a business valuation by a professional appraiser. The spouse who is buying can pay in cash or work out a payment plan.
- Remain co-owners: Sometimes, ex-spouses can still work together professionally. This needs clear communication and often a formal contract that explains each person’s role and responsibilities.
- Sell the business: If neither wants to keep the business, selling it and dividing the money is another way. This makes the divorce simpler but means you both must agree on who to sell it through and accept the sale price and timing.
Each choice has its own challenges and benefits, so you should carefully consider each option to determine which is right for your situation.
Get help from professionals.
Dealing with a divorce and a joint business takes a good understanding of both legal and financial issues. It helps to work with a skilled divorce lawyer and a financial advisor or business appraiser to properly value the business.
Make a detailed business agreement.
If you decide to keep owning the business together, it is important to write a detailed business agreement. This should cover each person’s role, salary and how you will make decisions, as well as how to manage any disagreements. This helps prevent problems and keeps the business running smoothly after the divorce.
Keep talking.
It is crucial to keep communicating clearly during the divorce. You should keep having regular meetings to talk about how the business is doing. This helps avoid misunderstandings, keeps both of you informed and helps you limit the impact of the divorce on your business’s daily operations.
Dividing a business can be a source of contention in divorce. However, with careful consideration you can make informed decisions that benefit both parties as well as the company you have built.