Small businesses are typically defined as 100 employees or less, and can be very difficult cases. Partially, this is because the business is not only an asset, but a source of income during the marriage.
The division of assets can be even more complicated where both spouses work in the business. Removing one of the spouses can be difficult and expensive. Maintenance (alimony) is often awarded to the spouse who is removed. Business cash flow is often a major concern, and it may sometimes be difficult for a small business to make regular monthly payments of maintenance.
Both the length and amount of maintenance are discretionary with the court and are determined by RCW 26.09.090 according to the following factors:
(1) In a proceeding for dissolution of marriage or domestic partnership, legal separation, declaration of invalidity, or in a proceeding for maintenance following dissolution of the marriage or domestic partnership by a court which lacked personal jurisdiction over the absent spouse or absent domestic partner, the court may grant a maintenance order for either spouse or either domestic partner. The maintenance order shall be in such amounts and for such periods of time as the court deems just, without regard to misconduct, after considering all relevant factors including but not limited to:
(a) The financial resources of the party seeking maintenance, including separate or community property apportioned to him or her, and his or her ability to meet his or her needs independently, including the extent to which a provision for support of a child living with the party includes a sum for that party;
(b) The time necessary to acquire sufficient education or training to enable the party seeking maintenance to find employment appropriate to his or her skill, interests, style of life, and other attendant circumstances;
(c) The standard of living established during the marriage or domestic partnership;
(d) The duration of the marriage or domestic partnership;
(e) The age, physical and emotional condition, and financial obligations of the spouse or domestic partner seeking maintenance; and
(f) The ability of the spouse or domestic partner from whom maintenance is sought to meet his or her needs and financial obligations while meeting those of the spouse or domestic partner seeking maintenance.
Another complicated situation is where the parties are co-owners with persons other than the married couple. Questions as to whether there are Buy and Sell Agreements might complicate the ability to value and divide the business.
For business owners, the value of the business is undoubtedly the largest issue in the case. Professional businesses may include “Goodwill.” In the case of Marriage of Hall, 103 Wn.2d 236, 692 P.2d 175 the court delineated five methods of determining the goodwill value: 1) The straight capitalization accounting; 2) The capitalization of excess earnings method; 3) The I.R.S. variation of capitalized excess earnings method; 4) The market value approach; and 5) The buy/sell agreement method. Which method is best for the business in question is often in dispute. Experts are usually retained to provide an opinion as to which method is appropriate and what the value will be.
Property is divided in Washington State in a just and equitable manner. This does not necessarily mean 50/50. Property is divided under RCW 26.09.080 according to the following factors:
In a proceeding for dissolution of the marriage or domestic partnership, legal separation, declaration of invalidity, or in a proceeding for disposition of property following dissolution of the marriage or the domestic partnership by a court which lacked personal jurisdiction over the absent spouse or absent domestic partner or lacked jurisdiction to dispose of the property, the court shall, without regard to misconduct, make such disposition of the property and the liabilities of the parties, either community or separate, as shall appear just and equitable after considering all relevant factors including, but not limited to:
(1) The nature and extent of the community property;
(2) The nature and extent of the separate property;
(3) The duration of the marriage or domestic partnership; and
(4) The economic circumstances of each spouse or domestic partner at the time the division of property is to become effective, including the desirability of awarding the family home or the right to live therein for reasonable periods to a spouse or domestic partner with whom the children reside the majority of the time.
Further complications include whether the business is separate or community property, or if it is separate property with a right of compensation by the marital community. Even if a business is one person’s separate property, the court may consider it community property if the person did not draw a reasonable salary during the marriage. This is a very complicated area of law that will determine whether some, all or none of the business will be divided. Significant evidence may have to be obtained to prepare for settlement or trial, and that is what often requires the division of business interests to be so expensive.
Child support can also be difficult to determine for small businesses. While the support schedule provides for calculation of child support based upon monthly earnings, small business cash flow is often highly variable. Also questions often arise as to whether personal expenses are being wrongfully written off as business expenses.
Competent counsel should be acquired early. While most cases can be resolved through negotiations or mediation, small business divorces require far more work to prepare them for settlement.