Married for 10 years in Washington St. Had business before getting married and still have it. Now divorcing, can she get 1/2 of business? What about inheritance being community property?
1 Answer from Attorneys
In a community property states such as Washington, the court starts with the following rebuttable presumption: all property and debts acquired prior to the date of marriage are separate property and debts; all property and debts acquired between the date of marriage and the date of separation are community property and debts except for gifts, inheritances and the pain and suffering portion of a personal injury award; and all property and debts acquired after the date of separation remain separate.
Since you owned your business prior to the date of marriage, and assuming that you never issued shares to your spouse, then it is a separate property business and all profits derived out of that business remains separate property. However, to the extent you paid yourself a reasonable salary during the marriage as well as any retirement benefits, the income and retirement benefits are community property. Depending on how much money you earned during the marriage and what your spouse was doing for career or employment during the 10 years of the marriage, your spouse may be entitled to spousal maintenance, as well as one half of any retirement or pension benefits that you set up through your company, if any.
As briefly mentioned above, inheritances received during the marriage are one of the exceptions to the community property presumption. They are generally separate property unless they become co-mingled with community property. For example, if a family member died and left you a substantial sum of money and that money was kept in a separate bank account and never touched during the marriage, upon dissolution of your marriage, that money would remain separate property. Under the hand if you deposited that money into your joint immunity property checking account and subsequently over the years made several withdrawals and deposits to the point where it's impossible to figure out what money you are spending, then that inheritance would be deemed to be co-mingled and have become community property.
Unlike some community property states, Washington goes a step further after characterizing property as either community property or separate property. Washington courts have the ability to distribute community property in any fashion that equity justifies. Thus, the court could grant 60% of the community property to one spouse and 40% to the other. The court also has the power to distribute the separate property of one spouse to the other spouse if there are reasons to justify it. There is no set formula to determine what kind of justification one would need.
However, there are several examples I can give you to give you an idea of what would justify an unequal distribution of community property. For example, if one spouse had a gambling addiction and gambled away a significant portion of the community property savings, then the court is may award the non-gambling spouse a greater portion of the remaining community property. Another example is if one spouse spent money that belonged to the community without the permission of the other spouse in a wasteful manner that did not benefit the community, then the court may grant the other spouse a greater portion of the remaining community property assets.
Disabilities of one spouse that arose during the marriage may sometimes justify an unequal distribution of community assets. I hope that at least helps to give you an idea of what you are facing. Having written that, please understand that people with their own businesses often deal with a complicated set of rules in dissolution of marriage cases, particularly when it comes time to determine what is a reasonable income for the self-employed person to have been taking during the marriage, as well as how to value the business. My suggestion would be to hire both an attorney as well as have a CPA ready to consult with at any time because they're often tax consequences that arise in dissolving the marriage with a closely held business. You may also require someone to evaluate the business to give her the dollar figure value. It all depends on what the business is, how much volume it does how much net profit it takes in, etc.
Best of luck to you,