How Divorce Works When One Spouse is Self-Employed in Washington State

The divorce process is often taxing, as you and your soon-to-be ex-spouse must engage in a series of negotiations and make major decisions in order to end this chapter of your lives and move forward. The logistical elements of the divorce process take time, and many couples also experience a range of strong emotions during this process, such as grief, sadness, anger, loss, anticipation, anxiety, and frustration. Even if the two parties agree that ending the marriage is their best option, disagreements can arise during the negotiation process and complicate the timeline. While all divorces in Washington state require the parties to divide their marital property in a fair and equitable manner, some divorce cases involve more complex considerations. For example, high-net-worth divorces that involve real estate assets, investment portfolios, or small business ownership can benefit greatly from the guidance of an experienced and trusted Seattle divorce attorney. Divorce involving a business owner or a self-employed spouse needs extra support, as these factors affect the property division process (as well as spousal maintenance considerations). 

If you or your spouse is self-employed, it’s important to approach the divorce process with a commitment to negotiate in good faith. Income calculation for a self-employed spouse is not always straightforward, and valuation professionals may be necessary to determine the “fair market value” of a small business that is operated by one or both spouses. Whether you need help valuing a business during divorce or separating business assets during divorce, the dedicated and caring team of family law and divorce attorneys at the Hemmat Law Group are ready to support you and answer your questions at every step of the process. Today, we will take a closer look at some of the key considerations during a self-employed divorce in Washington state and how enlisting the guidance of a highly skilled Seattle divorce lawyer can help you move more confidently through a high asset divorce involving business ownership.

Understanding Income For Self-Employed Spouses in Washington State

Self-employment differs from traditional employment in several ways. Without a W-2 that clearly defines the employee’s income, it can be more challenging to accurately calculate this spouse’s income. Here are just a few of the ways that self-employment can create additional challenges for divorcing couples in Washington state, particularly when it comes to property division negotiations.

The Small Business May Be a Marital Asset

As a community property state, Washington considers any property earned or acquired by either spouse during the course of the marriage to belong equally to both parties, regardless of which spouse actually acquired the asset. In other words, if one spouse owns and operates a small business, the other spouse may be entitled to this asset if the court considers it to be marital property. 

Unclear Distinctions Between Business and Personal Life

Self-employed individuals tend to have a more difficult time keeping their personal finances distinct from those related to their business. For instance, business owners may have used marital assets to launch the company, or the couple may have started the business and then one spouse took over the operational side of the enterprise while the other took a more traditional job with another company.  

Traditional Salaries vs. Business Revenue

Accurately calculating a self-employed income can be a nuanced process. Unlike a traditional salary that is paid on a regular basis, a self-employed business owner often experiences a wide fluctuation in revenue. During the Washington state divorce process, the income for a self-employed spouse is determined by calculating the spouse’s actual income (which tends to differ from their taxable income because of business deductions and other factors). 

Valuing a Business During Divorce in King County

If you are filing for divorce in Washington state and both or one of the parties owns a small business, you will need to take a series of steps to ensure that this asset is handled properly and equitably along the way. Small businesses can be significant assets for one or both spouses, so it’s essential that the company is valued accurately. Many people find it helpful to hire a qualified, independent business valuation professional to examine the business and arrive at an accurate valuation. During the business valuation process, this professional will look at how much the business is worth right now, what the fair market value of the asset is, and how much of the company’s value is tied to your involvement. Once you have had the opportunity to obtain a valuation of the small business, you can move forward with the asset division negotiation phase of the divorce process. 

Handling Business Ownership During a Seattle Divorce

Since Washington’s community property laws recognize that an asset that’s acquired during the marriage belongs equally to both parties, regardless of which spouse earned or acquired the property, a small business that is launched during a marriage will likely be considered marital property in the event of a divorce. This means that the spouse that did not start or operate the business can still have a legal interest in this asset. While the Washington court will rarely force the former spouses to continue running the business together after the divorce is finalized, the judge may offer alternatives like having one spouse keep the business by buying out the other party’s interest or suggesting that the parties sell the business altogether and divide up the proceeds. These decisions can be difficult to move through, especially when the parties disagree about how to handle the small business. Whether you are the spouse who has run your small business for years and want to protect it as much as possible or you are hoping to show the court how much work you put in to supporting your ex’s business, seeking the guidance of a highly qualified and trusted Seattle high-asset divorce lawyer is the best way to ensure that your voice is heard. 

Child Support and Spousal Maintenance Considerations

If a divorce involves spousal maintenance considerations or child support determinations, these negotiations can be contentious to work through on top of all of the other discussions and decisions that accompany the divorce process in Washington state. Let’s take a look at how self-employment and small business ownership may affect child support and spousal maintenance determinations.

Child Support Determinations in Washington State

Washington courts calculate child support obligations using someone’s net earnings (their actual available income), not just their salary. Small business owners may deduct what are known as “normal business expenses,” but the court will carefully review these matters and have the authority to “add back” certain expenses (i.e., home office expenses, personal car payments, etc.) to calculate the individual’s income. The court may also view any funds that are reinvested in the business or held as retained earnings as actual available income. Other considerations, such as whether this parent is manipulating business records to appear as if they are earning in less than they really are or intentionally limiting their income to avoid or reduce child support obligations, will be reviewed and addressed by the court as needed. Ultimately, the goal of establishing a child support order is to ensure that both parents are participating in the financial wellbeing of their children. 

Negotiating a Spousal Maintenance Order

In order to determine whether spousal maintenance is appropriate, the court will look at the valuation of the business and the earning capacity of the business owner. If the business is profitable and has the resources to provide ongoing financial support to the lesser-earning spouse after the divorce is finalized, the court may issue a spousal maintenance order to ensure that the recipient is able to transition to their post-divorce reality as smoothly as possible. Disagreements about the necessity of a spousal maintenance order are common, so it’s often beneficial to enlist the services of a dedicated and knowledgeable Seattle divorce attorney who can represent your best interests during these pivotal negotiations. 

Frequently Asked Questions (FAQs) About Divorce and Small Business in Seattle

Will I be entitled to part of the business?

Yes, if your spouse launched the business during the course of your marriage or you contributed some of your assets to start the company. Under Washington’s community property laws, both spouses are entitled to property acquired by either spouse over the course of the marriage. 

Can my spouse hide income through their business?

Unfortunately, yes. If you suspect that your spouse is not engaging in good faith negotiations during the divorce process, share these concerns with your attorney to determine how to proceed. 

Reach Out to Seattle’s Trusted Family Law and Divorce Law Firm

The prospect of wading through a divorce can be daunting and stressful. When you partner with the Hemmat Law Group, you can trust that our highly experienced and caring family law and divorce attorneys will guide you through every step of the process and look out for your best interests at every turn. We specialize in high-asset divorce cases, especially those that involve small business ownership or a self-employed spouse. Please get in touch with our Seattle, Washington office today by calling (206) 682-5200 to get started with a dedicated and empathetic divorce lawyer.