Filing for divorce can be one of the most challenging events a person can face. While there are a seemingly endless number of details to work out, one that often proves most complicated is when one or both spouses own a business. A business will likely be one of the most valuable assets of the marriage and one that is a source of pride for the owner. Therefore, it makes sense that the owner would want to take steps to maintain control and ownership of their business.
California is a community property state, which means that marital assets are not necessarily split in half. Marital assets usually include anything of value that is accumulated during the marriage, such a business created at the kitchen table or in the garage. Separate property is assets owned before the marriage, not commingled with marital property or directly inherited or given to one spouse, such as a family business. In drafting an agreement, the couple may create their own arrangement for dividing the assets by assigning values to these assets, which can then split up with sole ownership of the business balanced by other significant assets on the other side.
Important factors to consider
Business owners can take the following steps to protect or minimize a divorce’s impact on their business. Avoid them at your own risk:
- Prenuptial/postnuptial agreements: While they may not always be ironclad, these will often outline how the couple’s assets are divided. Business owner is a common consideration in these agreements.
- Salary: Those owners who underpay themselves risk a spouse claiming partial ownership since a substantial part of the owner’s wealth is tied up in the business.
- Spousal contribution: A spouse will likely be entitled to a portion of the business if they were an early bookkeeper, salesperson, or contributed in some way to getting things started.
- Business valuation: An attorney can help with the valuation of a business, although it may be necessary to bring in an outside expert if the two sides cannot agree on a number.
- Operating agreements: Partnership, shareholder or LLC’s can include provisions that protect the interests of the business if one of the owners gets divorced. The co-owners may also require a future spouse to sign a prenup agreement or a waiver that limits a new spouse’s involvement unless they approve it.
Crafting your own agreement
A knowledgeable family law attorney with experience handling divorces involving a business can be a big help. They can guide clients through the entire process of divorce while effectively protecting the interests of their client. They may even provide creative solutions to complex problems before having to litigate a matter in court.