Divorcing as a Business Owner: What to Know

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Divorce for business owners can be particularly stressful — your company may be the most valuable asset you possess. You’ve worked hard to build your bottom line and may be concerned about what will happen to it in the event you part ways with your spouse. When a couple decides to end a marriage and one of the spouses owns a business in their name, dividing the asset can be one of the most contentious issues in divorce. Here are a few things every entrepreneur should be aware of when it comes to their business and divorce:

Know Whether Your Business is Separate Property or Marital Property

The origins of your business are crucial to determine how it will be impacted by divorce. Oregon is an equitable distribution state, which means that marital property is divided between the parties in a way the court deems fair, not necessarily equal. By law, marital property is differentiated from separate property, which is acquired by either party before the marriage. Any assets and property acquired during the course of your marriage will be subject to division in divorce — including a business — whether it is titled in one spouse’s name or both. If you created your business before you got married, the court would characterize it as separate property. But even if you started the business before you were married, division can get complicated when the value of the business grew during the course of the marriage or marital funds were used to help the company expand. In such cases, “commingling” occurs, and determining the portion of the assets that should be divided in divorce can be much more complex.

Ensure Your Business is Valued Properly

During divorce, your business will need to be properly valued to determine how much it is worth. There are many factors that go into assessing the value of a business, depending on the type of company. In Oregon, the fair market value is the standard applied to assess how much a business is worth. This is generally defined as the equivalent of the cash price that would change hands between a buyer and seller when neither party is forced to buy or sell, and both have knowledge of the reasonable facts. It is often necessary to hire a business valuation expert to ensure the asset is valued accurately. Parties don’t always need to litigate the issue of dividing business assets during divorce. In fact, spouses can agree on the value of the business rather than let a judge determine the matter. If the nature of the business is fairly straightforward or if the business interests only comprise a small percentage of the couple’s marital assets, a settlement may be reached using an alternative dispute method such as mediation or negotiation. In some cases, a business owner may need to sacrifice their right to other marital assets in order to retain full ownership of their business assets.

If You Don’t Have a Prenup, Consider a Postnup

It’s important to take the necessary legal measures to safeguard your business from divorce as early as possible. If you started the company before you were married, it is a good idea to enter into a prenuptial agreement to protect your interests and shield these assets from divorce. But if you don’t have a prenup — or if you started the business during the marriage — you should strongly consider a postnuptial agreement. With a prenup, you can help to protect your business from divorce in the following ways:
  • Determine the value of the business as of the date of the marriage
  • Establish any compensation for your spouse
  • Establish the business valuation method that should be used in divorce
  • Decide how contributions from the non-owner spouse would be valued
  • Determine any ownership rights for your spouse
Similarly, a postnup can accomplish the same objectives in divorce for business owners. While a prenup must be executed before marriage, a postnup can be entered into at any time during the course of the marriage. Such an agreement should be strongly considered at the time you create your business, or once you realize divorce is a real possibility. A prenup or postnup can significantly reduce the amount of time and money spent on litigation in a contentious divorce to determine how business assets should be divided.

Keep Business Assets Separate from the Outset

If you created your business before marriage, it’s best to keep your business assets separate from your marital assets from the outset. Be sure to keep your business funds in a separate account from your marital assets, pay yourself a competitive salary, and think twice before contributing marital assets to pay for the company’s expenses. If possible, try to keep your spouse out of business operations — if they helped you run the company or contributed in non-financial ways, they could be entitled to a percentage in the event of divorce.

If You Are a Business Owner Going Through a Divorce, Contact an Experienced Oregon Divorce Attorney

Since they often spend years growing their companies, divorce for business owners can be overwhelming. If you own a company, it’s crucial to have a knowledgeable divorce attorney by your side to advise you regarding your options and protect your financial interests. Based in Salem, Litowich Law offers clients throughout Oregon skillful counsel and diligent representation for divorce and the complex issues that are associated with ending a marriage. We welcome you to contact us to schedule a consultation.
Categories: Divorce