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How Do I Keep My Business as a Separate Property Asset in a Community Property State?
Thomas Pedreira

Q. 

I want to start a business in Washington. I am married, but this business will be mine alone. My husband pays child support & owes an outstanding debt to his ex-wife resulting from their distribution of property at the time of their divorce. How do I establish this business so that no income from it will be my husbands and therefore subject to consideration in determining child support amount or repayment of his prior debt to his ex?



-- Karen

A. 

This is perhaps a question better presented to a family law lawyer than a business attorney. In general, though, Washington is a community property state, which means that all income, earnings and other property acquired during marriage, except by gift or inheritance, is presumed to be the community property of the spouses. To avoid this result, you will have to have a written agreement with your husband that confirms the business is your separate property, as well as the rents, issues and profits from the business. Each of you should have your own attorney in drafting up such a document (which might be called a post-nuptial agreement).

From a business planning perspective, the best thing to do may be to form a corporation or an LLC, of which you would be the sole owner (and the money or assets that you use to capitalize the business should also be your separate property). You then have to be very careful to treat every aspect of the business as your separate property -- don't commingle the business assets with your community assets, don't have your husband on any loans, leases or other contracts. I am guessing that you would also want to file separate rather than joint income tax returns, etc. Even doing all this, however, may not be a failsafe way to protect the assets of the business from your husband's creditors, or to keep the business income from being considered with regard to his child support obligations.

You should work closely in conjunction with the attorney for the business, with a family law attorney and with your accountant to make sure you don't create even more problems for yourself by jumping through all these hoops.



-- Thomas Pedreira






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