What Happens to My Business During a Divorce in Oregon?

If you’re an Oregon business owner facing divorce, it’s normal to feel anxious during this time of uncertainty. After all, your livelihood and the future of the business you’ve worked hard to build may be on the line. It’s important to know what to expect if you are facing a divorce and are a business owner in Oregon, and what steps you can take to minimize disruption.

Under Oregon law, business interests are considered assets and may be divided, just like your house, retirement accounts, or investment portfolio. Fortunately, there are strategies available during a divorce to protect businesses. This article will walk you through what you need to know. 

What happens to a business during divorce in Oregon?

Oregon is an equitable distribution state, meaning property isn’t automatically split 50-50. Instead, the court divides property in a way that it deems just and proper, or “fair”, under all of the circumstances. Your business, or your share of it, may be divided as part of the property division process.

Frequently, it is necessary to value your business interests, often through a formal appraisal or expert valuation. The standard for valuing a business and other assets during a divorce is fair market value. In Oregon, fair market value of a business is the price a willing buyer would pay a willing seller when neither is under pressure to engage in the sale, and both have a full understanding of the relevant facts.

In Oregon, it is typically the Court’s goal to untangle the couple’s financial lives. In many cases, one spouse is awarded the business, while the other receives marital assets of comparable value.

However, awarding the business to one party and assets of comparable value to the other party is not always possible or advisable. Under these circumstances, the parties and/or the Court must come up with another option. 

In rare cases, the court may order that the business be sold. This is especially true if neither spouse wishes to continue to own and operate the business, or if neither spouse can afford to buy out the other’s interest in the business. If a sale is necessary, the Court may oversee the sale to help avoid conflict that may arise related to the sale and to ensure that the proceeds are fairly distributed. 

Couples may even continue operating the business together after a divorce. This option requires the parties to be on the same page with the goals and objectives of the business. If that is the case, clarity and careful planning, often guided by experienced counsel experienced in business law or divorce mediation professionals can help parties align as business partners even if they are no longer married.  

 

Is your business marital property or separate property?

The first step is to identify whether a particular asset is a “marital asset” (acquired during the marriage and subject to a presumption that each party contributed equally to obtaining and/or developing the asset) or if the asset is simply “marital property” (assets that are not acquired during the marriage and therefore not subject to the presumption of equal contribution). In Oregon, a business that is a marital asset or a business that is considered marital property are both subject to division. 

When determining spousal rights to a business, courts typically consider the following:

• When was the business founded?

If you started your business during the marriage, it’s usually considered a marital asset. If the business interest was created or obtained prior to the marriage, the presumption of equal contribution does not apply to the value of the business prior to the marriage. However, oftentimes, the growth or appreciation in the business during the marriage is a marital asset and therefore subject to the presumption of equal contribution. Ultimately, the Court has the authority to divide business interests, whether the marital asset, marital property or a mixture of both. This is especially true if there was commingling of assets or if both spouses contributed to the business in any form (financially, administratively, or otherwise).

• Who funded or worked in the business? What did each spouse contribute to the joint financial partnership during the marriage? 

If your spouse contributed time, labor, or financial support, even without formal ownership, courts may treat those efforts as grounds for dividing the business’s value. The Court also views the parties and their respective contributions during the marriage with the assumption that both contributed to the overall financial partnership for the family, regardless of whether one spouse is a breadwinner or a homemaker. 

• Did the business grow during the marriage?

If marital assets were used to grow the business or the business financially supported the household, courts may consider some or all of its value part of the marital estate. It is important for the parties to be able to present evidence regarding when the business was created, if there was value to the business prior to the marriage, if the business grew during the marriage and how each party contributed to the business’ growth during the marriage, both directly and indirectly. While the presumption is that assets acquired during the marriage are divided equally, the court ultimately aims for an equitable division of all assets (assets acquired both before and during the marriage), considering all relevant factors.

Related: Estate Planning During Divorce

 

Protect Your Business Before or During Divorce in Oregon

Whether you’re preparing for the future or actively navigating a legal separation, it’s important to know how to protect a business in divorce in Oregon. Your options depend on your timeline.

If You’re Planning Ahead

If you want to proactively protect your business, these steps can help before divorce becomes a possibility:

Sign a Premarital or Postmarital Agreement

A well-crafted premarital agreement can clearly define what will happen with your business in the event of a dissolution. This means that you and your partner will proactively decide together what happens with business interests in the event of a dissolution. With a premarital agreement, you can decide how to treat premarital versus marital business interests, growth that occurs to businesses during the marriage and how income derived from the marriage will be categorized. 

For example, your agreement might state that any increase in the business’s value during the marriage remains separate property or that a business interest will be awarded to a specific spouse even if the value of the business is subject to division.

If you are already married, you can accomplish many of the same objectives by entering into a postnuptial agreement.


Formalize Compensation for Spouses Involved in the Business

  If your spouse works in the business, pay them fairly. Otherwise, they may claim that their contributions to the business have gone uncompensated. 
 

Include Divorce Provisions in Shareholder or Partnership Agreements

If you have business partners, a buy-sell agreement with clear terms defining who may own an interest in the business and what the options are for business owners in the event of a divorce, can help preserve stability and prevent outside ownership interests from interfering.

  Related: High Net Worth Asset Divorces: Strategies to Handle Them

If You’re Going Through a Divorce

When divorce is already underway, and if your business is considered marital property, these strategies may help you protect your business interest:

 

Negotiate a Buyout

If your spouse contributed to the business, they may be entitled to a share of its value. A negotiated buyout can help you retain full ownership while reaching a fair settlement. 

 

Consider Offering a Larger Share of Marital Assets

If keeping your business is your top priority, you might negotiate a settlement where your spouse receives other assets instead of a share in the business. Courts in Oregon look favorably on equitable agreements that both parties find acceptable.

 

Prioritize Collaboration When Possible

Avoiding litigation often leads to better outcomes. If you and your spouse can reach an agreement outside of court, you may be able to preserve more value in the business and reduce stress for everyone involved.

Protecting Your Business During Divorce as an Oregon Business Owner

Dividing property in a divorce can be complex, especially when a business is involved. Knowing how to protect a business in divorce in Oregon is crucial and it is essential that you retain family law counsel that can guide you through understanding the nuances of divorce law in Oregon.

 At Gevurtz & Menashe, we’ve helped countless Oregon business owners navigate divorce. Our experienced family law attorneys understand the complexities involved when a business is part of the equation. We’ll work with you to protect your interests, reduce conflict, and find practical solutions tailored to your goals.

Contact us today to schedule a confidential consultation with a business divorce lawyer in Oregon and take the next step toward safeguarding your future.