Most business owners don’t think about the potential repercussions of marriage when they decide to tie the knot. Unfortunately, if you do decide to get divorced, it can have a dramatic negative impact on your business. It’s vital to know how to protect your business during a divorce in California. The attorneys at Neumann Family Law, A.P.C., can take steps to see that you retain ownership.
Divorce Poses Unique Risks for Business Owners
Liquid assets, like bank accounts or publicly traded stocks, are relatively easy to divide in a divorce. Businesses, however, are complex and dynamic. They are typically tied to a person’s livelihood and, sometimes, even their identity. Businesses can be both valuable sources of income and marital assets that must be split during the separation. The biggest risks associated with the division of a business include:
- Loss of partial ownership or control
- Being forced to sell or refinance
- Expensive valuation disputes
- Ongoing financial obligations related to the company
To avoid the worst outcomes associated with these risks, business owners need clear legal plans to protect their companies. You can get a head start by learning how California divorce laws handle business protection and why early action can greatly improve your outcome.
When Is a Business Separate Property?
The first and most important question pertaining to your business in California is whether it is considered separate or community property. If it’s community property, your spouse may have a legal claim to part of the company’s value.
Businesses are considered separate property if they existed prior to the marriage or are clearly protected by a valid prenuptial or postnuptial agreement. Just keep in mind that, even if a business starts off as separate property, the community can obtain an interest in the business if you use community funds or community efforts to grow it.
When Is a Business Community Property?
A business will be treated as community property if it was started during the marriage. The court will most likely consider the business or its value as community property and subject to a 50/50 split.
The Importance of an Accurate Business Valuation
A valuation will determine the company’s worth and what portion of it may be subject to division. In 2024, the Golden State had over 1.8 million private sector businesses generating 90% of the state’s GDP. Many of them were owned by married couples. Business valuations can let the owners know exactly what those companies are worth. They can then divide community from separate property to make it easier to determine viable options for a division or buyout.
Valuations consider the following factors:
- Revenue
- Profits
- Assets
- Liabilities
- Goodwill
- Market conditions
Multiple business valuation methods can be used for business divorce purposes. Choose the right one so that your business’s value will be accurately estimated, and it will be clear what parts of the business are considered separate vs. community property.
Dealing With a Worst-Case Scenario
If you didn’t take any steps to protect your business during your marriage, you’ll need to face the possibility of a buyout or asset offset. Common strategies include:
- One spouse buying out the other’s interest in the company
- Offsetting the business’s value with other unrelated marital assets
- Making structured payments over time
You’ll still lose assets commensurate with the value of the business, but you won’t lose control of your company.
Protecting Operations During the Divorce
Divorce proceedings can easily disrupt business operations. You can take steps to protect your business from your personal affairs by:
- Limiting unauthorized access to business accounts
- Establishing temporary orders
- Preventing unauthorized interference from non-owner spouses
- Preserving confidentiality
- Preserving client relationships
You should also involve a California divorce attorney as early in the divorce process as possible. Don’t wait until major financial decisions have been made.
FAQs
Can My Husband Take Half of My Business in a Divorce in California?
Your husband can take half the value of your business in a divorce if it is community property. This is especially likely to happen if the business was founded during the marriage. The chances are that your husband won’t take control of the company itself. Instead, you would either buy out his share or sell the business and split the proceeds. You could also offset the value with other assets.
How Can You Protect Your Business When Going Through a Divorce?
You can protect your business when going through a divorce by:
- Separating business from personal financing
- Obtaining an accurate valuation
- Using prenuptial or postnuptial agreements or buy-sell agreements regarding ownership
Some common strategies include:
- Buying out your spouse’s interest in the company
- Trading non-business assets
- Using a structured settlement to maintain operational control
What Assets Are Untouchable During a Divorce?
The assets that are untouchable during a divorce include any non-marital assets, also called separate assets. Separate assets are accrued before a marriage begins. Specific types of assets obtained during a marriage are also considered separate. They include gifts to one spouse and inheritances. Avoid comingling these assets with joint assets to minimize complications.
How Is an LLC Treated in a Divorce in California?
An LLC is treated as community property in a divorce in California if it was created during the marriage. This designation makes the business subject to a 50/50 split. Typically, the owner retains full ownership and compensates the spouse with other assets, such as the house or retirement funds. Businesses that were owned prior to the marriage may remain separate property, even if the increase in value that occurred during the marriage was shared. However, the community may obtain an interest if the business grew due to the efforts of one spouse, or the investment of community assets into the business, during the marriage.
Hire a Divorce Lawyer in California Today
If you’re planning on separating from your spouse and you’re concerned about how your business will be divided, the first thing you should do is hire a divorce lawyer. The attorneys at Neumann Family Law, A.P.C., can help. We have certified family law specialists on staff, and both Sara Neumann and Edward Catro have 27+ years of experience in divorce litigation. No matter how complex or high-value your divorce case may be, we can handle it. Contact us to schedule an initial consultation today.
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