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Family Businesses and Divorce

Once a couple has made the decision to get a divorce, one of the big issues will immediately become how to divide up the marital assets and debts. Marital property and marital debt is subject to an equitable distribution by the court, whereas separate property typically will belong to the spouse who owned it before the marriage. Family businesses can present special challenges in a divorce when trying to divide the marital estate.

If the business is a marital asset, the business might need to be valued. This typically involves hiring a professional to appraise the business. Deciding how much a business is worth can be complicated, as businesses may have many different types of assets, including real estate, inventory, equipment, and the fixtures in the buildings. The appraiser will also need to take into account contracts the business may have for future orders or work, accounts receivable, and any intellectual property owned by the business.

Once a value has been placed on the business’s assets, the appraiser will deduct the debts and liabilities of the business to arrive at a number that is the value of the business—at least according to the appraiser. If one spouse desires to take over the business, then he or she will need to pay the other spouse his or her equitable share of the business. That amount might be 50 percent of the equity as determined by the appraiser, or some other amount as agreed to by the spouses or as determined at trial.  Also, it may also be possible to sell the business and split then net proceeds of the sale.

If the business is separate property, then the issue can be more complex. If the business was owned by just one spouse before the marriage, then theoretically, the business is separate property. However, as with any separate property, it is possible for the business to have become marital property during the marriage. For example, if marital funds were used to improve the business, or if the non-owning spouse helped to grow the business, then it is possible that the non-owning spouse may be entitled to a portion of the value of the business that increased after the parties’ marriage. A professional appraiser might need to be used to determine the increase in value of the business. Keeping excellent records and seeking advice from an attorney is key in keeping your business separate property.

Dividing a family business during a divorce is complex and has many different components. We have experience in helping our clients to navigate this complicated issue. Contact our team today at (253) 272-9459 to discuss your business and its future in your divorce.

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