Dividing a Business in California Divorce
When you are a business owner and anticipating that you will soon be going through a divorce in a community property state, there is a lot you need to consider. Under several scenarios any business that was purchased during the marriage or that has become commingled in marital funds could very well be seen and treated as a marital asset. Like any marital asset, this means it may be subject to division in the course of your divorce.
What is a Commingled Asset?
An asset that would not otherwise be subject to division in the course of a divorce may become “commingled.” If an asset does become “commingled” with marital assets then you should expect the commingled asset to also be subject to division.
For example, if marital funds were used to help your business, then the business may be considered marital property, even if it was originally acquired before the marriage and an entirely separate asset. So if you use marital funds to – for example – finance a kitchen remodel, or to bankroll the staff, expect that a court will see the business as being tied to the marital assets. Because California is a community property state you should expect to split any marital asset. There are, of course, some exceptions to this rule and some strategies you might be able to employ to safeguard against such a division.
Protecting a Business in a California Divorce
Most couples can agree, to some extent, that a community-property view of dividing marital assets is a way to ensure that a fair deal is reached for all involved. However, there are certain things worth fighting for and/or planning for. If you believe you may be headed for divorce and you want to protect against losing ownership or interest in your hard-earned business, the following are some tips to keep in mind.
- Utilize pre- or postnuptial agreements. Pre-nuptial and post-nuptial agreements are binding contracts. While community property law and asset division are the default in California, couples might largely bypass this on certain items if they properly employ a valid pre-nuptial or post-nuptial agreement. Both a prenuptial and postnuptial agreement allow you to specify how certain assets will be divided in the case of a divorce. When you go to draft one of these contractual vehicles you need to ensure that it can stand valid against any challenges. This is something an experienced family law attorney can help you with.
- There is Value in Settling/Mediation. Settling a divorce via alternate dispute resolution can give you far more power over the specifics of how division of your business and/or other assets will be handled. Often, settling will result in a more palatable deal because you are more in the driver’s seat as you work through negotiations.
- Proper utilization of trusts. Sometimes putting your business in a trust can be the right solution. When a business is placed in a trust, the trust owns the business. Speak with an experienced property division attorney to discuss how and whether this option may be right for you.
Contact Cardwell, Steigerwald Young
The San Francisco property division lawyers at Cardwell, Steigerwald Young can help advise you and fiercely advocate for your interests. Contact our team to discuss your legal options.
Sources:
forbes.com/advisor/legal/divorce/california-community-property/
finance-monthly.com/2023/08/my-former-partner-owns-a-business-can-i-get-half/
