When a couple divorces in California, their debt and marital property – the property they have accumulated and shared during their marriage – is subject to property distribution. Depending on your jurisdiction, it is either split equally (community property states) or equitably (equitable distribution states). Sometimes, marital property includes a business that the couple started together or, alternatively, one spouse started either before or during the marriage and continued to grow during the marriage. The business, under these circumstances, will also likely become subject to property division unless you take steps to safeguard it.
At Sunnen Law, our divorce attorney in San Diego understands the blood, sweat, and tears you put into starting and developing a business. We know you don't want to compromise that hard work in any shape or form. There are steps you can take, and our divorce lawyer will explain how to protect your business during a marriage or during a divorce. Call us at 619.255.9551 to set up a complimentary consultation today.
How Will a Divorce Affect My Business in California?
A divorce can affect every aspect of your life, including your business. How your business is affected will depend on a number of factors, including the law of the state that has jurisdiction.
Some states are community property states which means that you may either have to:
- split the business with your spouse, or
- give your spouse other compensation equal to half of the value of the business.
Other states use equitable distribution when dividing property. In these states, property is divided equitably or fairly between the parties. This may or may not be half of the business. Even so, it is likely you will be expected to give up at least part of the business, or its value, to your spouse.
Following are some other factors that must be considered regardless of whether you live in a community property state or equitable distribution state.
Who Owns the Business
Did you or your spouse inherit the business from family? Is it clear that only one spouse supported and worked at the business? These are both considerations that will help determine how a business will be divided in a divorce.
When Was the Business Started
If the business was formed prior to marriage, there are states that will maintain that it is premarital property and therefore not subject it to division. Also consider that in some states even if the business was started before marriage by one spouse, if the other spouse contributes to the business after marriage, it may be considered marital property, and therefore subject to being divided between the parties.
When a business was started during the marriage, it will most likely be considered marital property and therefore subject to division under the rules of the state with jurisdiction.
Ways to Proactively Protect Your Business in California
Fortunately, there are ways to protect your business so that you do not lose it, or part of it, in divorce proceedings. The best way to approach business protection depends on whether or not you are contemplating marriage and want to protect your interests, or if you are already married and fear a future divorce may harm your business.
Prenuptial & Postnuptial Agreements
While no one wants to go into a marriage contemplating a divorce, it really is in your best interest to plan for the “what ifs” when you have a successful business you need to protect. A prenuptial agreement will help you do just that. It is an agreement made by two engaged parties wherein they address how assets will be divided in case of divorce. You are able to state in this agreement whether the business is even considered marital property and, therefore, whether it would be subject to division.
A postnuptial agreement operates much like a prenuptial agreement, with the only difference being that it is entered into after marriage rather than before it.
An Agreement to Buy/Sell
A buy/sell agreement is a way to establish how your spouse's interest in the business would be determined in case of divorce. You can also specify the amount of a cash award the spouse would receive for their share of the business in the event of a divorce. This type of agreement ensures that you will be able to keep your business.
Ways to Protect Your Business During a Divorce in California
If you have no contract, whether it's a prenup or an agreement to buy/sell, you can still take measures to protect the business.
- Establish yourself as the sole owner of the business. Organizing documents should specify that the business is not transferable in the event of a divorce. To note, you may still need to provide a cash award to the non-titled spouse at the time of divorce.
- Keep your records. Even things like office furniture and office rent should not be paid with marital assets and maintaining records to clarify this is important.
- Separate finances. You should not mix business and personal expenses, and by not doing so, you can show that the business is separate. The opposite is true if you do commingle funds.
- Spouse as an employee. If your spouse worked at all, even if very minor, keep documents proving that the spouse was paid for their services.
Generally, you want to maintain clear and thorough records of just about everything related to your business.
Keep Your Business Safe: Get a Divorce Lawyer in San Diego
Even with any of the safeguards in place, a non-titled spouse may still pose a challenge to your business. They may try to inflate their contributions or obtain an appraisal that overvalues the business. The latter, at a minimum, is why having a divorce lawyer who is resourceful and knowledgeable is key to countering these tactics.
At Sunnen Law, our California divorce attorney for business owners will provide you with all your legal options and help you keep your business intact. Contact us at 619.255.9551 to schedule a complimentary consultation today. With the right lawyer, you can walk away from your marriage with your livelihood protected and your hard work secured.