If you are going through a divorce that involves a small business, this can be extremely difficult to figure out, emotionally, financially, and legally. For some people, their business isn’t just their way of income, but it is their entire livelihood, retirement plan, and can often result from years of personal sacrifices. In California, where community-property rules apply, the stakes can be even higher.
Whether you own the business or have been involved in the business being a spouse, here is what you should know about how California handles people going through a divorce who own a business.
How California Law Affects Your Business
In a California divorce, since it is a community property state, assets acquired during the marriage are generally divided equally in most cases. This includes businesses started or acquired while married.
- Community Property- If the business was created or grew throughout the marriage, the value of it is considered community property
- Seperate Property- All businesses that were owned before the marriage or if they were inherited may be considered separate property
- Mixed Property- If the business was before marriage, but during the marriage, it grew in money
Determining the Value of the Business
One of the most important steps is business valuation in any business-related divorce. A correct assessment will make it a fair split. What will be reviewed and looked at:
- Tax returns and profit and loss statements
- Cash flow and revenue estimates
- Assets and liabilities
- Goodwill
In California, the reputation of a business, especially for professionals like doctors, lawyers, or consultants, can be a big issue in divorce. This “goodwill” can raise the business’s value, which may increase how much one spouse has to pay the other.
Options for Dividing the Business
Once the business value is established, the next step is to figure out how it should be divided.
- One spouse keeps the business- This is a common option.
- Selling the business- Sometimes, selling the business is the cleanest solution.
- Co-Ownership after divorce- Some couples continue owning or operating a business together after divorce.
Protecting the Business
Protecting the business is very important. Here is what to do before, during, and after the divorce.
Before the divorce
If you own the business, you need to make sure there is protection, which should begin way before the divorce.
- Prenup or postnup agreements
- Keeping business and personal finances separate
- Avoiding mixing funds
These can help cut down on any fighting or confusion
During the Divorce
Once the divorce is filed, the owners should:
- Gather all financial records early
- Don’t make any major changes to the business
- Maintain transparency
- Work with an attorney and accountant
These will help you minimize the risk of the business and strengthen your legal position
After the Divorce
Once the divorce is finalized:
- Update the ownershop documents
- Notify anyone/companies about it
- Reassure employees or clients
- Have clear financial boundaries
The business usually will need some time to get everything situated, with a handled divorce makes the process a lot faster and smoother.
Protect Your Business Now
Small businesses can make divorces more difficult, but with the right legal guidance, the process can be navigated smoothly with minimal disruption to your livelihood. Whether it is yours or you are the spouse of the owner, knowing how the business is valued, divided, and protected is important to getting a fair outcome.
If you are facing a divorce with a small business, Roberts & Zatlin will help protect your business and your financial future. Contact us or schedule a free consultation today!
