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Negotiating business division in a community property state

On Behalf of | Oct 29, 2021 | Divorce

Before filing for divorce, business owners may need to prepare a plan for splitting what typically reflects their most significant asset. As noted by Business.com, California is a community property state where marital assets divide equally. Marital assets may include a business.

Enterprises started or acquired during the marriage become part of a couple’s shared assets. If spouses did not sign a postnuptial agreement to confirm a business exists as an individual’s separate asset, the court may require dividing its value in half.

Maintaining full ownership

Couples negotiating divorce settlements may agree to trade one spouse’s share of a business for another similarly valued marital asset. By agreeing to accept assets worth the same value, the court may consider the division an equal split.

Business owners with partners or investors may need to give up other marital assets to maintain ownership of a commercial venture. An ex-spouse might otherwise acquire shares or partnership units through a divorce decree. Maintaining the full portion of a business may avoid the possibility of ownership dilution.

Valuing a business’s worth

Businesses may require an appraisal to negotiate a divorce settlement. As reported by WealthManagement.com, how much an enterprise’s value is appreciated during a marriage may result in a value that must divide in half.

A professional evaluator may calculate a business’s current worth and compare it to its value on the date of its start or acquisition. Businesses created before the marriage may require valuing their appreciation from the date of marriage till the divorce.

The value of an enterprise may provide a reasonable starting point for negotiating a divorce settlement. Some spouses may agree to a lump-sum cash payment. Others may prefer to see it included in a financial support schedule. The way California couples decide to trade their marital assets, however, must result in a 50-50 division.