Ways Your Business May Be Affected in a Divorce

Posted on November 14, 2018 05:01pm
Ways Your Business May Be Affected in a Divorce

Business owners put their blood, sweat, and tears into their business, and have likely spent countless hours working to ensure that it prospers and continues to grow. So, what happens when business owners decide to divorce? Getting a divorce is a more complex event if you or your spouse own a business, whether you own it independently or jointly with your spouse or a business partner.

What Will Happen to My Business in a Divorce?

Unfortunately, in an Oregon divorce, your business interests are likely going to be subject to the division of property process along with all your other marital properties and assets.

Luckily, there are several things you can do, both before and during a divorce, to protect your business if you wish. Whatever your situation, it is important to consult with a divorce attorney with experience in divorce involving complex assets and business interests as soon as possible, even as a precautionary measure if you think that you are headed for divorce or will soon be asked for one.

Property Division Rules

Oregon is an equitable distribution state, which means that all property will be split between the spouses in a way that is deemed fair and equitable, though not always equal. In many cases, the business will be subject to division as well.

If the business is jointly owned, it will be considered a joint asset in your divorce. If the business was owned by one spouse before the marriage, it may be considered separate property and will, therefore, be excluded from the division. However, if the other spouse contributed to its success and growth during the marriage, that spouse may attempt to claim partial ownership.

It is also possible to protect the business through a prenuptial or postnuptial agreement. In either of these marital agreements, the spouses may agree that the business will remain the responsibility of one person. If this decision is written down in a legally binding document, it can go a long way to protect the business if a divorce should occur. Marital agreements, however, can still be contested in certain circumstances.

How Will My Business Be Valued?

Whether a couple decides to retain their business together, split it up, or turn over control to one spouse, the business needs to be valued. Assessing the value of your business is much like appraising a piece of real estate, but more complex. Both spouses, and the court, need to know the value of the business to determine how to deal with it fairly. Typically, the spouse who wishes to keep the business undervalues it while the other spouse claims the business is worth more than it actually is. To eliminate any misinterpretations, having it professionally valued is usually the best course of action. In some cases, each spouse may choose to hire their own business valuation expert to ensure there is no bias.

The business valuation expert will consider several different variables before coming up with a numerical value for your business. They will review all financial records pertaining to the business, including revenue statements, tax information, and other relevant documents. The evaluation will also consider the business’s industry, the key trends, and earning potential.

Choosing What To Do With the Business

Once the business has been valued, it will be easier for couples to move forward with a plan. Whether you go through negotiation, mediation or litigation, knowing the value of your business makes it possible to fairly divide the business, continue sharing it, sell it, or allow one spouse to move forward with it independently.

Dividing the Business

Dividing the business is not the most popular decision, but it may be possible, depending on the type of business in question and the way in which it is run. Both spouses stay on as owners and must agree on how they will split future income and expenses from the business.

Liquidate the Business

In other cases, couples may choose to liquidate the business and split the proceeds. This can be done by selling the entire business or selling the business assets. This is also not the most popular decision, but in some cases it does make sense for the business owners.

Keeping the Business

In most divorces, one spouse usually wants to retain the business independently. In trade, the spouse who does not receive the business will usually be given other marital assets or a portion of future profits as a trade, depending on the value of the business and the level of contributions the spouse made to the business during their time together. For example, one spouse may keep the business, but the other may receive the marital home, vacation home, and a larger share of the financial investments.

If you are going through a divorce and you own a business, make sure you know what you can do to ensure a favorable outcome during your property division. An experienced divorce attorney can work with you to develop a plan and secure your business interests or negotiate an agreement with your spouse. Whatever your wishes, our firm can work with you to find a solution that helps you work towards the outcome you want.

Contact McKinley Irvin at our Portland office to meet with our divorce lawyers.
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