Divorce can be complex, especially when it involves a business. Business owners need to understand how divorce can impact their professional lives.
It is helpful to know what happens to a business during a divorce and how both parties can navigate the process under California law.
Determining business value
The first step in dealing with a business in a divorce is to determine its value. An appraiser, often a forensic accountant, will examine the business’s financial records. This evaluation includes looking at assets, liabilities, income, and expenses. Accurate valuation is critical, as it influences the division of assets.
Marital vs. separate property
The court will determine if the business is community property or separate property. Community property includes assets acquired during the marriage, while separate property includes assets owned before marriage or acquired through inheritance or gift.
If a business started before marriage but grew during the marriage, it might be considered both separate and community property. The court may divide only the portion of the business that grew during the marriage.
Options for dividing a business
There are several ways to handle a business in a divorce. The first is where one spouse buys out the other’s interest in the business. Another option is for both spouses to continue to own and run the business together, though this is rare and requires a strong, cooperative relationship. Another option is to sell the business and divide the proceeds between the spouses.
Protecting the business
Business owners can take steps to protect their business from divorce complications. A prenuptial or postnuptial agreement can specify how to handle the business in case of divorce. Keeping detailed financial records and maintaining a clear separation between personal and business finances also helps.
Planning ahead
Divorce can significantly impact a business. Understanding the process and potential outcomes can help business owners and their spouses make informed decisions and protect their interests.