Dividing The Business

Dividing The Business

When business assets are involved in a California divorce, property division can become more complicated. To begin with, it is important to determine whether the business was started by one party before the marriage, or was it established during the course of marriage.

Other key issues to be addressed will include whether the business assets should be sold for property division or one of the parties will retain the ownership or control of the business post-divorce. And will the other party continue to have any financial interests in the business after divorce?

To determine whether the business is treated as community property or separate property, the court will look at pertinent facts, such as the date of establishment of the business, the date of your marriage, contribution of each spouse to the business, the sources of business capital, and the date on which the business has been valued at the time of divorce.

Business Valuation by a Third Party Professional

Who keeps the final control of the business in a California divorce settlement should ideally be decided by mutual agreement between the two parties represented by capable divorce lawyers. If they are unable to agree, the court will make a decision on this matter. However, the more complex part of business division in a divorce is valuation of the net business assets.

If you have a resourceful Orange County family law attorney to represent you, they will be able to introduce you to a CPA, forensic accountant or a professional business appraiser for an objective valuation of the business. This third party professional will review all business accounts and records and determine a fair market value of all business assets and debts to provide an accurate valuation figure.

The business appraiser will also take into account intangibles such as business goodwill, intellectual property, customer and vendor relationships, quality of employees, and investors’ support to estimate the future earning potential of the business. To protect your interests, your attorney will ensure that the business valuation is not just restricted to the current value of the physical assets, but the long-term profit generating capacity of the intangible assets.

If the business is financially robust and thriving, you may want to retain control of it after your divorce, or at least keep a financial interest in it if the business ownership goes to the other party. You need an experienced divorce attorney in Orange County who has the acumen to recognize the real value of the community business and help you make the best decision to maximize your benefit.

If the business was established and run by you during marriage, your attorney will be able to assist you in organizing all business records and putting things in order even before you file for divorce. Your attorney will gather evidence and documentation to prove that you are primary founder and executive of the business.

Depending on your situation, your attorney will also connect you with a financial advisor or CPA to prepare for buying out the other party’s share in the community business so that you can continue to own and control it after your divorce.

Options for Business Division

After the valuation exercise for the business assets and debts has been completed, you and the other party will have to evaluate your respective interest in the future running of the business. Some of the typical options may include:

• Buy out the other party’s share if you have sufficient funds and you believe that the business can continue to be a profitable enterprise in the long run.
• Split the business, if it is sufficiently large or has multiple branches, subsidiaries or divisions, so that each party can own and run one part of it after divorce.
• Sell the business outright if both you and your ex-spouse are not interested in running the business after divorce.
• File a corporate bankruptcy if the liabilities of the business are far in excess of the assets and both parties are unable to pay off the creditors.
• Continue to own and run the business jointly after the divorce, provided both parties are confident that they can keep their professional and personal relationships separate.

What Happens when a Separate Property Business Grows after Marriage?

It is possible that your ex-spouse established the business prior to marriage, and now wants to have 100% ownership by claiming it as a separate property at the time of divorce. However, if the business expanded and flourished during the course of marriage with capital infusions from community funds, you may have a rightful claim to receive a share of the business or be reimbursed for the appreciation that the business has gained during marriage.

As long as there is no prenup or postnup agreement to the contrary, the court will consider whether appreciation in the separate business actually occurred after marriage, and if yes, whether the community property contributed in that appreciation. The other party will try to claim that the appreciation in the business post-marriage was solely due to their business skills and enterprise.

But your Orange County divorce lawyer should be able to track down and establish evidence that community funds during the course of marriage were used for the growth and expansion of the business. In such case, the business founder will be reimbursed for their separate property component, while you will get a share in the appreciated value of the business that occurred during the course of marriage.

Division of Inherited Business

If you inherited a family business (whether before or after your marriage) the court will treat it as your separate property at the time of property division for divorce in California. However, it is important that you maintained the business as a separate property throughout your marriage.

Sometimes the business owner may add the name of their spouse as a co-owner in the official incorporation documents or give the title of director or partner or another title to the spouse for the sake of tax management or other business purposes. In this situation, the other party may have a claim to a part of the business assets at the time of divorce.

Legal Help for Dividing Your Business in a Divorce