Community Property Equals An Even Distribution of Assets
The short answer to “How is my business split in a divorce?” is the distribution of assets is evenly divided… with a few exceptions. California is a community property state. Once the business is valued, each partner is entitled to half the value and possibly future income from it. Still, there are multiple ways to resolve splitting the business between separating spouses.
Buyout: Certainly one spouse can buy out of a business if the buyout terms can be agreed by both spouses. The buyout costs needs to reflect more than half the value of the business, since the spouse exiting will miss future revenue generation. That raises the business price to half the value plus have the future earnings less liabilities.
Divide the Business: The spouses can divide the business. When a business is larger with both spouses actively involved, it could be possible to divide the business so each spouse runs part of the business at their own preferences
Sell the Business: By selling the business, both spouses are then freed to pursue their own business vision or retire, depending on what the sale proceeds allow.
Dissolve the Business: Some separating spouses choose to dissolve the business, sell of the assets and split the proceeds evenly. This approach removes the question of who will control the business, but is usually done other resolutions aren’t workable.
Continue To Run The Business: There are some ex-spouses who can keep a professional relationship, but cannot remain married. They choose to remain legal partners after the divorce. This is rarely done, as divorces tend to be emotionally tricky especially when both parties work together.
Determination of How Is My Business Spit in a Divorce by Proving Business Ownership
Of course the judge will have the final say answering .how is my business split in a divorce. When you are trying to figure out who will control the business after divorce, look at who ran the business before and during the marriage. Which spouse was more involved in the business? The judge is likely to take into consideration whether both were active in the business, and for how long before and after the marriage.
Protecting Your Business From Divorce Loss
If one spouse started and ran the business for decades before marrying and a year later the spouses want to end the marriage, a judge is likely to favor the spouse who started the business. But if you really want to protect your business, there are steps to take before divorce losses.
Planning Ahead With Business Terms in a Prenuptial
A couple can lay out how the business will be split in case of a divorce in a prenuptial or postnuptial agreement. A solid Prenuptial agreement is the first step to protecting your business ownership, but it is not enough. During the marriage, you must keep business financials separate from community financials. If both spouses put money into the business, it may no longer be considered a separate entity.
Proving Ownership Through Documentation
Documentation is essential to protect your business from the beginning. Document who owns it, how many hours each spouse spends at work for the business, and document how involved each is. E.g., registration documents and contracts in only one name, or that can be executed by just one spouse imply ownership. If both spouses have business cards, only one should be listed as owner, or CEO.
If your spouse has the ability to sign contracts, is on registration documents and doesn’t have another job, they are considerably involved in your business. If you run the business with your spouse on the payroll, your spouse is clearly employed by the business. Be prepared to prove to a judge that you are the driving force behind the business.
Private Practices Have Different Circumstances
As a doctor, therapist or other server where the business is based on your education and license to practice, it’s clear the business is based on your credentials. Your business will still have to be valued, but you will keep control over the business post-divorce. It can’t exist without your training and license to practice.
If spouses cannot come to an amicable agreement of division of business assets, the judge decides who gets what. California divorce and business ownership is a complex issue to steer through. Hittelman Family Law Group has decades of experience with working through business division of assets. If your business has considerable assets, consult with your Orange county attorney right away. When trying to answer the question: “.how is my business split in a divorce?” get professional advice at HFLG. Contact HFLG or call (949) 210-3260 today.
This article is not intended to be construed as legal advice. It is for informational purposes only, offering insights and awareness into the complex nature of dividing business assets in divorce. Speaking with an experienced family law attorney is an advisable way to make sure your rights are safeguarded.