Business and divorce in Washington state
Spokane attorney writes about marriage dissolution in stateSeptember 25th, 2014
Most couples don’t enter into a marriage or a business anticipating that either may be torn apart by divorce.
But with about 50 percent of marriages in the United States ending in divorce, that possibility exists, notes David Crouse, a Spokane divorce attorney and author of a new book called “Divorce in Washington: The Legal Process, Your Rights, and What to Expect.”
Crouse says his practice, David J. Crouse & Associates, located at 422 W. Riverside in the U.S. Bank Building, is a boutique law firm.
“All we do is family law,” Crouse says. “We have four attorneys that focus on every (divorce) case from the biggest case to the smallest one.”
Crouse’s book was released in June, in paperback, by Addicus Books, of Omaha, Neb., which typically publishes nonfiction consumer health titles.
Addicus has also developed a line of legal titles, which focus on divorce by state. The authors for the series are attorneys, each from a different state, who explain divorce laws and the process of divorcing in their state.
Crouse, a graduate of Gonzaga University and the Gonzaga University School of Law, says he was asked to write the book by the publisher and after agreeing to author the book, started writing it in March 2013 and finished it that June.
“I worked on the book during evenings and weekends during those four months,” he says. “I was still working full time at my practice. I just had to discipline myself to do it.”
The 250-page book is organized in a question-and- answer format and broken out into chapters about topics such as the divorce process, child custody, attorney fees and costs, spousal maintenance, division of property, and going to court, as well as resources and a glossary.
The book is available at Amazon.com, and other major booksellers, as well as from Crouse’s office.
Crouse, who opened his firm in 1993, says he’s seen a lot of changes since then, particularly in the past 10 years. Divorce, he says, typically used to happen in the first seven or so years of marriage. Today there’s been a shift. He says the number of divorces involving couples who have been married a long time has increased dramatically.
“For the past 21 years and over 4,500 divorces, I’ve seen an increase in divorces with those who have been married over 30 or 40 years,” he says. “Thirty years ago, there was only about a 1 percent chance couples like that would get divorced.”
Although couples aren’t required to have an attorney to divorce in Washington state, Crouse contends that not using one can have harmful consequences in cases that involve children, significant assets or debt, professional practices or other businesses, and/or spousal maintenance.
Washington, like most states, is a no-fault divorce state, he says, meaning neither party to the divorce is required to prove the other is at fault to be granted a divorce. Nor does Washington have a minimum residency requirement for divorce. Washington and Idaho are also community property states, in which all married persons are considered to own their property, assets and income jointly.
Crouse says because going through a divorce can be an emotional time, it helps to have a clear understanding of the divorce process, and knowing what to expect can lead to better decision making. One of the most complicated aspects in divorce can be the division of property, especially if it involves a business or a professional practice, such as that of a doctor, dentist, attorney or others.
“My practice is focused on couples who have significant assets, people who have businesses, and people with complex portfolios,” he says.
He represents mostly small business owners and says he often hears people say that their business isn’t worth anything, especially if they leave it. “They say it wouldn’t make any money, unless I’m there running it.”
But, he says many people underestimate the value of their business.
“The legal standard of what the business is worth is complex—what the business is worth as an ongoing concern,” he says. “There can be a number of different values placed on a business by different experts. It’s not unusual for one expert to find that it’s worth $100,000 and another to find it’s worth $300,000.”
Courts generally prefer one of two options in cases where spouses have owned and operated businesses together for many years, he says.
“First is to award the business to one spouse, and compensate the other spouse for his or her share of the value,” he says. “Second is to have the business sold if neither spouse can buy out the other’s interests in the business. Leaving both spouses as owners after a divorce is rarely successful in the long run.”
Crouse says when a business is involved, it’s important to work with an attorney and develop a strategy for valuing the business, and making a case for how it should be treated in the division of property and debts.
“Business valuations are some of the most complex issues for an attorney,” he says.
In divorce cases involving business valuation, he estimates that about 50 percent end up going to trial or to mediation.
At any given time, Crouse says he maintains a caseload of about 25 to 30 cases, although they’re not all active at any given time. Typically, he says, of the 30, between 20 and 23 of them will be settled in mediation, about five will be settled without mediation, and two or three will end up in trial.
Business and professional cases become difficult to resolve, he says.
“Sometimes it takes some creative lawyering, but percentagewise, a higher number of those go to trial,” Crouse says. “When the valuation of the businesses is so far apart that it can’t be bridged, the case has to involve a judge to make the decision.”
In cases involving businesses where there is a big difference in valuation, his strategy is based on the data itself, he says.
“We look at what do similarly situated businesses sell for in our geographic region. We also do earnings analysis. There are methods of doing these, and the CPAs will dig in and determine what that business is worth based on the data available,” Crouse says.
Still, he says, the vast majority of cases are settled at some point in the process without going to trial. He believes strongly in the value of mediation.
“It varies from county to county whether there is forced mediation,” he says. “But I think it’s a good process to go through, and I encourage my clients to go through it. It empowers people because it gives them some control over the results.”
Although mediators ultimately decide the outcomes, he says, there is room for negotiation, and a mediator can provide perspective on whether an issue or decision will be looked upon favorably if the case goes to trial and a judge decides the case. “People then will say, maybe I need to compromise … if she won’t sell the lake cabin outright, maybe she’ll take a note over time,” he says.
When mediation is involved, the mediator physically moves between the two parties and their attorneys.
“He or she must maintain confidences and try to narrow the gaps between the parties, and there is usually give and take,” Crouse says. “It gives people the opportunity to come up with meaningful resolutions … things that would never happen if the case went to trial. Mediation usually works when people come to it and negotiate in good faith.”
Conversely, if one or both spouse’s positions are so far out there and there is no spirit of compromise, mediation won’t work, he adds.
“Ultimately, it’s an adversarial system we operate under,” Crouse says.
However, he reminds clients that the cost of a four- to five-day trial can be upwards of $20,000 per client.
“Mediation works even in complex cases, if the spirit of compromise is there,” he says.
Crouse says people who have owned businesses before marrying and find themselves facing a divorce assume it’s not necessary to protect the business, but that’s not necessarily true.
“When business owners are going into a marriage, it’s wise to seek legal advice to protect investments they’ve built before the marriage,” he says. “It can be really tragic to put 10 to 20 years in a marriage and find out you have no ownership in the business your spouse owns, even if you have worked in the business.”
He says a prenuptial agreement can be a good idea, and each spouse should understand how the business operates. A prenuptial agreement is an official agreement between two people before they marry in which they state how much of each other’s property each will receive if they divorce or if one of them dies.
Crouse adds that tax issues may arise during a divorce and shouldn’t be overlooked. “Taxes can impact many of your decisions, including those regarding spousal maintenance, division of property, and the receipt of benefits,” he says.
He contends that when a business owner is faced with divorce, the best things they can do to contact an attorney and provide full disclosure, receive instruction on how to equitably manage their business going forward, and make sure that no mistakes are made that could have disastrous consequences.