How Is a Business Divided in a California Divorce?

In a divorce, a business is considered an asset. Because California is a community property state, if your business has become commingled or was purchased during the marriage (i.e. is a marital asset), it will be subject to division during your divorce.

A commingled asset is an asset that you acquired before your marriage that became commingled and is considered marital property. For instance, if a spouse worked as the business manager or marital funds were used to help the business, the business will be considered marital property even if it was originally acquired before your marriage.

Whether your business is subject to division or deemed separate property, you will need to have the business properly valued before the division process begins. A forensic accountant, certified valuer, broker, or agency can conduct a business valuation so that you and the courts have an accurate idea of your business’ value.

Dividing a Business in a Divorce

Once all assets have been assigned a monetary value, they can be divided. You and your soon-to-be-ex-partner can negotiate and try to handle the division yourself. With your business, you may consider buying out the other party or selling the business and dividing the proceeds to ensure you maintain ownership.

In some cases, a couple may decide to share ownership and become business partners if they own a business and divorce. If a couple cannot agree on the division of their assets, the decision concerning how the business will be divided is left up to the court.

How to Protect Your Business in a California Divorce

As a business owner, selling or having to divide ownership of your business is likely not ideal for you. To protect your business from division in a divorce, you can:

  • Draft a pre- or postnuptial agreement. If you have a prenup or postnuptial agreement, you can outline how assets will be divided in the event of a divorce. While a prenuptial agreement can be challenged in certain circumstances, you can protect your business from division with this type of agreement.
  • Handle the property division settlement out of court. To protect your business, you should try to handle the division through alternative dispute resolutions like mediation. By settling the matter out of court, you can have more autonomy over what happens as you will negotiate with the other party.
  • Invest in quality insurance. Some insurance programs accumulate cash value over time, and you can liquidate these funds to help buy out your partner.
  • Put your business in a trust. By putting your business in a trust, you are not considered the owner. The trust owns the business, which can protect the business from being considered a marital asset.
  • Avoid commingling your business. If you purchased and/or started your business before your marriage, you can protect your business from divorce by avoiding commingling the asset. This means keeping business funds and marital funds separate, limiting the contributions that the on-owner spouse contributes to the business, and taking measures to ensure your partner’s involvement is kept to a minimum.
  • Consult with our experienced attorneys. We understand how difficult divorce can be, especially if you have a business or other important assets that you want to protect. Once you retain our services, we can work tirelessly to develop a personalized case strategy that helps you maintain your business. With over two decades of experience, you can trust our team to help you achieve favorable results.

Need help protecting your assets and/or handling your property division agreement, the attorneys at The Neshanian Law Firm, Inc are equipped to help you understand your legal options and protect your business and assets. Contact our firm today by calling (949) 577-7935 or completing our online form today.