How Does Divorce affect Business Ownership?

For most people, their home will be the most valuable asset they own. For business owners, though, their most valuable assets could very well be the companies they spent years of their lives nurturing and growing.

If you’re a business owner, what happens to your stake in your company is a considerable matter to address during divorce. You may think you’re entitled to your whole company because it was all of your work that went into making it what it is, but this is not always the case. Depending upon your unique circumstances, your spouse could be entitled to 50 percent of your business in the divorce.

Is Your Business Community or Separate Property?

What you can expect to happen to your company might begin with determining whether or not it is considered community property. In California, community property in a marriage is divided equally between spouses, so here is a situation where your ex-spouse could be assigned a 50-percent ownership interest in your company.

This is especially the case if you and your spouse started the business together or the company was started during your marriage. While married, your individual stakes in the company didn’t matter as much because the income and liabilities the business assumed were in service to both parties in the marriage. Now that divorce is under consideration, disentangling and dividing up ownership of that company into distinct pieces should occur.

If a company is considered community property, its net worth will need to be assessed during divorce proceedings. This is so a value can be assigned to each spouse’s stake in the company should liquidation occur, but one spouse could potentially buy out the other spouse’s interest to assume full control over the company. If they can cooperate, it’s even possible for ex-spouses to continue running the company as co-owners with their own individual stakes in the business.

When a Business Is Considered Separate Property

Plenty of people build businesses before they get married. If this is the case for you and your company, it may be considered your separate property during the divorce. As separate property, it is not subject to property division of any kind.

That said, however, comingling your company’s assets with your community property can compel the court to determine that your business is so entangled with your marital assets that it must be counted among them. Great care must be taken when titling property and other assets to prevent this from occurring.

When a Business Is an Inherited Family Business

Family businesses add a few interesting twists to everything we’ve covered so far. The first is that no spouse is entitled to another’s inheritance, even if it was acquired during the marriage. In other words, a spouse who receives her father’s company as an inheritance can count it among her separate property even if she was married long before receiving it.

If a family business was received as an inheritance, it’s important – for the purposes of divorce – for the recipient to maintain it as separate property. Things that can commingle an inherited family business with community property include giving a spouse a title with the business and control over its management and operation. Should this occur, then a portion of the family business’s assets could be assigned to that spouse.

Conclusion

If you’ve feared that you could lose your business in a divorce, unfortunately, some of your fears are well-founded. If you started your business while you were married – and especially in partnership with your spouse – it will need to have its value assessed and divided as community property. In some cases, you can buy out your spouse’s share in the company, but this will require his or her compliance and can cut into your share of other community property.

If you own a business as separate property, whether it’s one you started before marriage or a family enterprise you inherited, it’s crucial to maintain it as separate throughout your marriage to protect your business interests. There are many ways to do this, one of which can include asserting your ownership in a prenuptial agreement.¬†Your spouse may otherwise attempt to claim your company’s assets are commingled with community property, but a skilled attorney on your side can help you protect what’s actually yours.

If you need assistance or advice for any legal matter during your divorce, turn to the lawyers at Claery & Hammond, LLP for help. Get in touch with us today by calling (310) 817-6904 or by connecting with us online.

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