In many California divorces, spouses are not only dissolving a marriage but also evaluating how to deal with a jointly owned business. To protect your interests, it is strongly advisable to speak with an attorney to understand your options and evaluate what you can do to protect your interests.
If you are seeking insights on asset protection before and during divorce in California, talk with an experienced Divorce lawyer to get your questions answered today.
Understanding California Community Property Law
According to California state law, shared property is known as community property. By law, each property has a shared interest in everything that constitutes community property.
In the case of divorce, each spouse receives 50% of any joint assets and debts (Family Code, § 2550). Several rules prevent assets from falling into the ‘jointly owned’ category. In many marriages, this is stated clearly in a prenuptial agreement.
What if One Spouse Runs the Business in California?
In California, any business assets acquired by a California couple during their marriage are considered community property, regardless of who runs the business. If one spouse started the business before getting married, the pre-marital portion including income generated from this will be treated separately.
Options to Consider for Dividing a Family Business in California
California laws can be complicated and the division of a jointly owned business is complex. To determine the best options in each case, spouses often choose to consult an attorney. Ultimately, the division of a business will be based on how well spouses get along and if continuing to co-own and operate a business is an option. Further, spouses may consider the value of the business and whether selling the business is desirable.
Selling a Jointly Owned Business in a California Divorce
One solution that appears to be simplest is selling the business to a third party. The proceeds will be split evenly. This can handle the division of a jointly owned business. However, there is a downside. The business will be sold and both parties may be left without employment.
If there is a high-conflict relationship, dissolving and selling a jointly-owned business can be an attractive option. The liquidation of assets and paying off debts may help both spouses walk away from past conflicts and start fresh.
Buying Out the Partnership in a California Divorce
Alternatively, one spouse may opt to buy the other’s interest in ownership. This involves determining and agreeing on the value of all hard assets such as equipment and bank accounts, debts, and income evaluation. This can be complicated and requires external financial assessment such as by a professional appraiser, forensic accountant, or business analyst.
Dividing the Company in a California Divorce
Spouses may choose to divide the company 50/50. This can include dividing portions of the company such as contracts, lines of business, inventory, and customers.
Continuing Operating the Business After a California Divorce
In some situations, the divorcing couple may choose to remain business partners. This may enable spouses to continue business operations and maintain professional relationships.
Evaluation Methods for Business Appraisal in California Divorce
To determine an accurate business value, a business appraiser will use several evaluation methods. These can help determine the value of a business that generates income. Typical evaluation methods include market capitalization or a revenue multiplier model.
The valuation of a business determines the current worth of a business, using objective measures, and provides a comprehensive view of all aspects of the business. Common approaches include a review of financial statements, discounting cash flow models, analyzing future earnings prospects, and the market value of assets.
Preparing for Business Valuation in California Divorce
One of the most important steps in business valuation is getting prepared. Before meeting with an attorney, gather tax returns, financial documents, income records, and expenses.
Business valuation relies on both spouses disclosing all business assets and debts.
Talk To an Experienced California Divorce Attorney
If you are considering divorce and seeking solutions for dividing a jointly owned business, the Law Offices of David M. Lederman is here to help. We are here to guide you through the difficult divorce process. If you have any questions about protecting your assets in a divorce in Antioch, Moraga, and across Contra Costa, Alameda, and Solano Counties, please get in touch. We are happy to talk with you. Call 925-522-8889 or send an email to set up a consultation. We are happy to discuss the protection of assets and other divorce-related issues in California.