Many professionals with college degrees, graduate degrees and state licensing prefer to be their own bosses rather than to work for established companies. Physical therapists, accountants and many other educated professionals may decide to start their own professional practices so that they can choose what clients they take and how they serve their community.
A professional practice can be a source of pride and household income. It can also be a vulnerable asset during divorce proceedings. Resources that are worth more money tend to become focal points during property division negotiations. Those preparing for divorce in Washington may need to take steps to protect their professional practice.
How can people limit divorce-related risk to a practice they developed to monetize their education and skills?
Proving the practice is separate property
If a professional already had a successful practice when they first married, they might be able to claim that the practice is largely their separate property. The same is true in scenarios where they inherit or take over the business for a family member who dies or retires.
A marital agreement might be necessary to protect a professional practice from claims of commingling, as people generally need to reinvest in their businesses during the marriage. Any marital income used to maintain or improve the business might lead to claims that the business is at least partially marital property. Establishing that the practice is separate property or how much of it is marital property can be an important starting point.
Valuing the practice
A professional practice could be worth hundreds of thousands of dollars. Between real estate holdings, specialized equipment and local brand recognition, a professional practice could be worth quite a bit of money.
There are different valuation methods that business owners can use to determine what a professional practice is worth. Choosing the right valuation method and presenting a reasonable value for the company can help professionals limit how much equity is at risk during a divorce.
Agreeing to make other concessions
When the practice is partially or entirely marital property, it may be vulnerable during the property division process. Concerned professionals can protect the businesses they established by agreeing to allocate other assets to their spouse in consideration of them retaining sole ownership of the business.
In some cases, spouses may even want to attempt alternative dispute resolution before taking divorce issues to family court as a means of retaining control over what happens to a professional practice. They can settle with their spouse and prioritize preserving as much equity in the practice as possible.
Preparing to protect assets that represent significant value and future income can be important in the early stages of property division proceedings. Professionals do not necessarily have to give up their practices if they utilize the right approach to the divorce process.