Dividing a Business Interest

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When one party to a divorce is either self employed or has an ownership interest in a business, there are typically two issue that arise. The first, as discussed in my prior blog entry, is determining that persons actual income for child support and/or spousal maintenance purposes. The second issue, which is the topic of this entry, is to determine the actual value of the business interest for property division purposes.

A business is can not only be a source of income, it is also an asset to be divided. Like any other asset (house, retirement, car, investment, etc.), before we award the asset to one party or the other, we need to know its value.

In many small businesses, especially sole proprietorships with no employees, it it is a service business, it may have no value other than as a job or source of income. There may be the value of the assets, equipment, inventory and accounts receivable, but there is no value of the business itself that would be bought or sold by a third party. Therefore there is no additional value to be considered in the divorce in dividing assets. No one would pay money to purchase your [plumbing, contractor, hair cutting, etc.] business, when they could just open up their own business.

In many other businesses, the business is more than just a job, it is an ongoing concern that would have value to a third party who would pay money to purchase it. If the owner died, the business could still continue and flourish. In these cases, the issue becomes, how do we establish a value. The best way to determine the value of the business is to hire a business appraiser. They are professionals who have expertise in valuing businesses. They will look at the tax returns and bookkeeping records of the business, the type of business and its future, the value of similar businesses, and other relevant factors to determine its value.

Once we have determined a value of the business, it can be added to the spreadsheet to determine a fair and equitable division of all of the assets.

The Renton law firm of Mogren, Glessner & Roti, represents clients in a variety of family law cases. Please visit our web page at Seattle Divorce Lawyers for more information.

Income of a Self Employed Party

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When one party is either self-employed or has an ownership interest in a business, there are two issues that arise in a divorce case. The first is the parties actual income for child support and spousal maintenance purposes, and the second is the value of the business interest for property division purposes.

Frequently it is critical to determine the income issue first, as it is not uncommon to go to court within a few weeks of filing to determine child support and spousal maintenance in temporary orders. Support is primarily based upon the need vs. ability to pay, and the parties income is a critical component to the ability to pay.

It is not uncommon for a self employed person to understate their income. This can be done in a number of ways, including:

• Payment of personal expenses from the business (such as auto expenses, phone and other utility bills, insurances, entertainment, food, etc.).



• Unreported income like cash payments.



• Money paid from the business to someone else (like parents, children, girlfriends, etc.) for services never rendered, that may eventually be given back.

It is critical to get as much information and documentation as soon as possible. It the client has access to business records, this is quickest and least expensive method. If not, the information can be subpoenaed (income statements, balance sheets, statement of accounts, tax returns, check registers, bank statements, etc.). Also the personal bank records can show unaccounted for deposits (presumably unreported income). Loan and credit card applications are also useful, as the parties state under oath what their income is (and for loan purposes, they tend to overstate the income while for court purposes they will understate their income).

Determining the income of a self employed person can be difficult, because they frequently have a lifetime pattern of hiding their income. There is a wealth of information contained within the financial documents that an experienced business mind can help organize and asses. If your spouse is self employed and has potentially hidden their income, you should consider discussing your case with an experienced family law attorney.

In my next post, I will talk about small business valuation.

The Renton law firm of Mogren, Glessner & Roti, represents clients in a variety of family law cases. Please visit our web page at Renton Divorce Lawyers for more information.

Equal vs. Equitable

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In Washington, the legal standard for the division of property and debts is not to divide things equally. At first glace, you might think that it should be. However, the legislature has determined that is not the standard to be used by the courts. An equal division of assets could result in the forced sale of assets and and unfair result considering all of the circumstances of the parties.

In Washington the legal standard is the division of assets and liabilities that results in a fair and equitable division. If the parties cannot decide what this is, then the court will divide things as the court deems fair and equitable.

If the two spouses have equal standards of living (income and expenses) at the time of divorce, and equal division of assets may be fair. If however they do not have equal standards of living (one has been a homemaker while the other has advanced their career), one may require a greater share of the property to cushion the income loss they will suffer at divorce. In that situation, the court may deem it fair and equitable to give that spouse a greater than equal division of the assets.

The Renton law firm of Mogren, Glessner & Roti, represents clients in a variety of family law cases. Please visit our web page at Seattle Divorce Lawyers for more information.

Talk to an Attorney by Phone?

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Can I talk to an attorney by telephone? Yes, if you call our office, we usually have an attorney available to take your phone call in person. If no one is available, we will try to return your call within a few hours. If you have a brief question, we will try to assist you by phone. If you have complicated facts or questions, it is usually better to set an appointment with an attorney so we can get all of the relevant information and fully discuss the issues with you. If you have a question, please feel free to call us at 425-255-4542.

Half Marathon

Well, I just ran my first half marathon (13.1 miles) on Labor Day. My daughter and I trained over the summer and had fun running and finishing the race together. It was a great accomplishment for both of us.

Life Insurance Beneficiary

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If you are in the process of or have recently completed your divorce, you need to consider changing your life insurance beneficiary. If the policy names your spouse, they may receive it even if you are divorced. You should check with your life insurance agent and update your beneficiary. If you are still in the process of the divorce, if there are restraining orders in effect, you may be precluded from changing the beneficiary until after the divorce is finalized.

The Renton law firm of Mogren, Glessner & Roti, represents clients in a variety of family law cases. Please visit our web page at Seattle Divorce Lawyers for more information.

Drug and Alcohol Evaluations

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Frequently in parenting disputes, there are allegation of drug or alcohol abuse. Drinking and/or drug usage is not necessarily an issue to the court unless it affects a persons ability to parent. The court wants to know how it has historically affected their parenting skills. Are they intoxicated around the child? Do they pass out when caring for the child? Does it affect their anger and ability to communicate effectively? Does it affect their judgment? Have their been issued of neglect or abuse in the past due their use? The answers to these types of questions tells the court whether their needs to be restrictions due to their drug or alcohol abuse.

When their are allegations that are denied, and the court does not know for sure, it is not uncommon for the court to order a drug and alcohol evaluation by a state licensed facility. Frequently the court will want the evaluation to include an interview, written questionnaire with collateral contacts (including the opposing party), criminal background check, random monitored U.A.'s, and a written evaluation. The evaluation should be released to both sides, the court, and Family Court Services (if involved).

If the evaluation identifies a problem and gives a recommendation, the court will usually require compliance as a condition to ongoing visitation.

The court is trying to balance the interests of allowing contact between the parent and child with protecting the child's safety. The court will seldom deny visitation. In severe cases, the court can allow supervised visitation only. More likely, the court will enter a restraining order, prohibiting the party from using or being under the influence of alcohol or drugs during, or for 12 hours prior to, any visitation.

The court can also provide that if the other party suspects that the parent is under the influence, that they can demand an immediate U.A., and stop the visit. If the U.A. comes up dirty, there is no visitation until they follow treatment or come back to court. If the U.A. is clean, the requesting party has to pay the cost, and make up visits are to be scheduled immediately.

The Renton law firm of Mogren, Glessner & Roti, represents clients in a variety of family law cases, both contested and uncontested. We have 4 attorneys for you to chose from. Please visit our web page at Renton Divorce Attorneys for more information.