Resolving financial issues during a divorce is often complicated. When there are business assets involved, it’s important to understand how California family law dictates they be divided. In most cases, the business is typically an asset and source of income for the divorcing couple. California is a community property state, so if you and your spouse owned a business during your marriage, you’ll need to start off by determining if the business and its assets are separate or community property.
This is done by establishing the business’
- Source of funds
- Valuation at time of separation or divorce
- Start date of marriage
- Each spouse’s business contribution
How to Divide Business Assets
Whether both parties continue to own the business, you decide to sell and divide the profits, or one spouse buys out the other, it’s essential to find ways to protect you, your family, and your business assets. Here are five tips to get you started. By the way, a pre-or post-nuptial agreement may waive your legal interest in the business.
- Get a Fair Business Valuation. A business valuation properly values the business so you can divide its assets as part of your divorce. Keep in mind that, even if the business was owned by you or your spouse prior to the marriage, it doesn’t mean the other party receives no value from it. That’s because, per Family Code section 760, all economic value that is created during a marriage is presumed to belong to both spouses. Many factors come into play when valuing a business. Number of customers, size, and location will affect a valuation, as will intangibles such as intellectual property. If you own a small business that has maintained consistent revenue during the marriage, valuation will be much simpler. Depending on your situation, each party may want to obtain their own valuation.
- Consider Buying Out Your Spouse. If you and your spouse agree that one person will retain the business, you can arrange gradual payments to him or her. This arrangement can relieve a lot of financial pressure, but it does require the business to be a profitable one. It also requires a level of trust in the other to run the business in good faith.
- Look at Other Options. If either one of you is interested in owning the business outright, and you don’t like the idea of payments made over time, there are other trading options. You can swap the business for your interest in any real estate, investment accounts, or other assets. Just make sure you receive competent advice on how assets are divided during a divorce in California.
- Think Again Before Co-owning. It is the rare couple who want to stay connected, except for any children, after the divorce is finalized. A clean business break is a practical and wise decision. Each party should get their half of the value of the business (not the shares) and then move on to brighter pastures.
- Hire a Good Attorney. In this case, a “good” attorney means one who has your best interests in mind. There’s no reason a business division should prolong your divorce proceedings, especially if you plan ahead. Divorce is painful enough – work with an attorney who wants to make the process as quick and friendly as possible for you.
Dividing a family business in divorce is rarely simple and often requires specialized knowledge. Be sure to consult with an experienced California family law attorney before making any decisions on how to divide this important asset.
Getting a divorce can be a financial disaster, which is why it is best to hire a lawyer who specializes in divorce or family law. They will know how to best protect your assets and guide you through the process with ease. For more information or to schedule a consultation, click the button below, or call us at 619-289-7948. We look forward to helping you!