business partners
Wail Sarieh
By: Wail Sarieh

Dealing With Divorce When You Own A Business Together

Divorce

When couples obtain a divorce in the state of California, if there is a disagreement over marital property and assets, and if there is no prenuptial or postnuptial agreement that specifies otherwise, a court will usually split the couple’s property and assets in half.

Splitting the assets and properties in a divorce proceeding sounds easy enough, but a division of the marital assets and properties can be extraordinarily difficult – as well as quite contentious. Businesses are assets, but how can a business lose half of its value and survive? How can an Orange County divorce law firm help?

If the idea of losing half of the business that you’ve built concerns you, keep reading this brief discussion about how a divorce can affect your business. Business owners do not always have to lose half of their businesses when they divorce, but they will need a good divorce lawyer’s help.

In the absence of a prenuptial or postnuptial agreement – or any other agreement – that specifies otherwise, all of the assets that a couple acquires during a marriage belong to both partners equally and must be divided “fifty-fifty” by the court in a divorce proceeding.

WHAT DOES A COURT CONSIDER WHEN IT “CHARACTERIZES” A BUSINESS?

Businesses are assets. In California, when divorcing spouses cannot agree regarding the division of property and assets, the court has those assets “characterized” to determine if the business is personal or community property or a combination.

The court will consider these questions:

  • Was the business inherited or did you create it?
  • If the business is a start-up, did you start it before the marriage or during the marriage?
  • If the business is an inheritance, did you receive it prior to or during the marriage?
  • If the business is an inheritance, is it entirely yours or was it divided among heirs?
  • Do you have one or more business partners?

business graphs

Do not assume that your business is community property – even if you started or inherited it during your marriage. A great deal will depend on the details. For example, if the business was started with your own personal funds, it may not be characterized as community property.

IN A CALIFORNIA DIVORCE, WHAT IS A DECLARATION OF DISCLOSURE?

To obtain a divorce in this state, both partners must file a declaration of disclosure with the court. The partner who files for the divorce must submit a preliminary declaration of disclosure when he or she files the divorce petition or within sixty days of filing the petition.

Let your divorce attorney assist you with the financial disclosure paperwork. A declaration of disclosure must include all of the community and personal assets and properties that the partners have acquired both prior to and during their marriage.

Both partners’ incomes and all assets and debts must be disclosed, and any failure to disclose is against the law. Disclosure gives the court a clear picture of each spouse’s finances, which makes it easier for the court to decide what is a fair division of the couple’s assets and properties.

WHAT STEPS SHOULD A DIVORCING BUSINESS OWNER TAKE?

Businesses change over time. People – even owners – come and go. If you are a business owner in California, you need to get “in front of” an impending divorce before it becomes a problem for your business.

business owners during a divorce

If you are considering a divorce or expecting to be served with divorce papers, and if you own a business in this state, taking the following four steps can help you protect your business and help you get in front of the business problems that will inevitably be posed by a California divorce:

  • Keep comprehensive, accurate business records. You must keep your personal and family finances completely separated from your business finances.
  • You must obtain a precise and objective valuation of the business to ensure that your partner does not acquire more than his or her legitimate share.
  • If your spouse has been a part of the business, your spouse will have a stronger case for receiving half of the profits in a divorce settlement, so you must begin to “ease” your spouse out of the operation as early as possible.
  • You may need to “trade” other assets in a divorce in order to retain the ownership of your business. You may need to consider, for example, sacrificing another asset like a real estate holding or a retirement account to compensate for half of the business.

WHAT OTHER OPTIONS DO DIVORCING BUSINESS OWNERS HAVE?

When divorcing spouses co-own a business, they may continue operating as business partners. In such a case, neither will have to give up his or her share of the business, and valuation will not be required. Divorcing partners can also simply sell a business they co-own and divide the proceeds.

business partnerships

Unless your business is a sole proprietorship or is co-owned with your spouse, you need to have a carefully drafted business plan, by-laws, or an operating agreement that adequately addresses what happens to the business when one of the owners gets divorced.

It is also never a bad idea to let an attorney review any contract or any other document related to your business that might affect your best interests during a divorce proceeding.

What you cannot allow is for an ex-spouse to take half of your business – and its profits – and then also receive alimony payments indefinitely. In Southern California an experienced Orange County divorce attorney can ensure that “double-dipping” is not a part of the divorce settlement.

HOW CAN A DIVORCE LAW FIRM HELP A CALIFORNIA BUSINESS OWNER?

When a divorce is imminent, some business owners may be tempted to break the law by acting to make the business appear less profitable. Do not fall for that temptation. A good California divorce lawyer will know how to protect your business legally in a divorce proceeding.

lawyers helping divorced persons

A divorce is always painful, but it is imperative to be practical and to stay focused on your long-term best interests. If you are a business owner in CA, a divorce does not have to impoverish you or ruin your business and your business relationships.

Before you file for a divorce – or as soon as you are served divorce papers – speak to an experienced Orange County divorce attorney who can protect your business and look out for your long-term interests. A good lawyer’s help is every divorcing spouse’s right.

Wail Sarieh
By Wail Sarieh