By Charles W. Gibson and E. Bradley Litchfield
Could divorce cost you the business you built?
A divorce does not automatically mean selling your company or splitting it in half. But disagreements over its value, profits, or your personal reputation can put substantial money at stake. Whether you own the business or are married to someone who does, decisions made early can shape your financial future.
Here are five questions every Oregon business owner (or their spouse) should ask before agreeing to a settlement:
#1: “I started this company. Can my spouse really claim part of it?”
Possibly. In Oregon, a judge may consider property owned by either spouse, even if only one name appears on the documents. But the rules are not as simple as “everything is split in half.”
Built during the marriage? Courts generally begin with the idea that both spouses contributed, including through work at home or caring for children. That starting point can be challenged with evidence.
Built before the marriage? The value you brought into the marriage can be treated differently from later growth. Keeping records of what the company was worth then may matter enormously.
The Oregon Supreme Court’s decision in a seminal 20024 court case, Kunze v. Kunze, is one reason these distinctions matter. In plain English, Kunze says courts first look at when property was acquired and whether both spouses contributed to it, then decide what overall division is fair. That does not mean every asset must be divided equally.
EXAMPLE: You married when your business was worth $500,000. At divorce, it is worth $1.5 million. The $1 million increase may be treated differently from the original $500,000—even though neither figure guarantees a particular outcome.
#2: “My spouse says the company is worth $1.5 million. What if it isn’t?”
Unlike a bank account, a private business does not come with a balance you can simply look up. Two qualified experts can examine the same company and reach very different figures. The right question is not just what number they chose, but why.
Assets
What would the company’s property be worth after its debts were paid off? May fit: a real estate company, equipment rental business, or investment entity.
Income
How much money can it reasonably generate? May fit: an established accounting firm, HVAC company, or profitable medical clinic.
Market
What have comparable companies sold for? May fit: a restaurant, auto repair shop, or franchise with useful sales data.
An expert may use more than one method. Just as important are the assumptions: Is the owner paid a fair salary? Will a major customer leave? Are unusual expenses hiding profit? Are the most recent tax returns still unfiled? And valuation is both art and science, meaning analyses can vary widely and need to be carefully checked.
WHY IT MATTERS: Imagine one expert values a company at $900,000 and another at $1.5 million. One expert might rely heavily on recent profits, while the other might believe those profits cannot continue without the owner's personal efforts. That $600,000 disagreement could change the entire divorce settlement.
#3: “Am I being asked to divide the value of my own reputation?”
This is one of the least obvious—and potentially most expensive—questions in a business divorce. A thriving company may be valuable because of the business itself, or because customers specifically trust the owner. Oregon generally treats those two kinds of value differently.
Enterprise goodwill is value that would likely remain with the company after an owner leaves: its trained staff, systems, location, name, or loyal customer base. It can count toward the value divided in divorce.
Personal goodwill is value tied to one person’s skill, reputation, and relationships. Oregon generally does not treat that personal value as a business asset to be divided.
Consider a dental practice: Patients may come for the office, staff, and convenient location—or because they will see only one particular dentist. Sorting out which is which can substantially change a valuation. This distinction can especially help the spouse keeping the company, but the result depends on the evidence.
#4: “Could the same business income be counted twice?”
Sometimes the numbers create a troubling overlap. Suppose a business is valued largely on expected future earnings. The operating spouse keeps the company and gives the other spouse value for a share of it. The same expected earnings may then be considered when setting spousal support. Lawyers call this concern “double dipping.”
It is not an automatic defense to support. Oregon authority does not create a simple across-the-board rule forbidding both uses of business income. A salary for the owner’s future work is also different from profits earned by the company. The valuation method, actual money available, each spouse’s resources, and the fairness of the whole arrangement matter.
#5: “Can I keep the business without going broke paying for it?”
Often, one spouse keeps operating the company while the other receives more of the home equity, investments, or retirement savings. The spouses might instead agree to a buyout paid over time. A sale is possible, but divorce does not require one automatically.
The trap is cash flow. A company valued at $1 million is not necessarily sitting on $1 million in cash. A large buyout, spousal support, taxes, and business loan payments can strain even a profitable operation. A realistic settlement must account for how payments will actually be made.
Also remember: If both spouses guaranteed a business loan, the divorce judgment alone normally does not release either from the lender’s rights. A lender-approved release or refinancing may be needed.
6 warning signs
Before you sign anything, be sure to look out for these warning signs that might mean trouble for you at a later date:
The latest tax returns are missing or the financial records are out of date.
There may be cash sales, personal expenses paid by the business, or income missing from the books.
One spouse controls the records and the other cannot verify the numbers.
Experts disagree sharply about profits, growth, or the owner’s role.
A proposed valuation seems to include clients loyal to one person rather than the company.
A buyout looks fair on paper but leaves too little cash to operate the company.
Where do you go from here?
If your company is a major part of the family’s wealth, or any of these warning signs are present, getting advice before agreeing on a value can preserve important options. A capable and experienced lawyer does more than cite divorce rules: They know what financial records to request, how to work with valuation professionals, how to test assumptions, and when a workable settlement beats a court fight.
Whether you built the business or married someone who did, the goal should be a fair result grounded in what the law says, what the company is really worth, and what each spouse can realistically afford after divorce.
TAKE THE NEXT STEP: If your divorce involves a privately held company, professional practice, or disputed business income, consider a focused consultation before accepting a valuation or support proposal. Bring recent financial statements, tax returns, and any existing appraisal.
Our firm can help you understand what the business is really worth, spot problems in a proposed division, and explore ways to protect your interests. If a business is part of your divorce, contact us early in the process and we will help you navigate it. Book a consultation with us today!
The information provided here does not constitute legal advice. Hutchinson Cox makes neither express nor implied warranties regarding the use of this material. The reader should always seek competent legal advice as the facts of every case vary.