Dividing Small Businesses in a Divorce

Community Property in California

Dividing assets in a divorce depend on the state where your divorce was filed. California uses community property principles of dividing assets upon divorce. Property that qualifies as community will be equally divided between the parties in divorce proceedings. Conversely, property that is considered to be a party’s separate property is not subject to property division.

All property the couple acquires during marriage qualifies as community property. In contrast, property that a party acquired before marriage or after the date of separation is considered to be their separate property upon divorce. Furthermore, property a spouse acquires during marriage through gift or inheritance is also considered to be their separate property and won’t be divided upon divorce.

The kind of assets that may be considered to be community or separate property is broad. This includes real estate, personal property, financial accounts, intellectual property, and business interests.

Characterizing a Business

Business interests follow the same characterization rules as other forms of property. Thus, a business that was first acquired during the marriage will be considered a community business that is subject to division upon divorce. Therefore, any business interest that one of the parties received before marriage or after the date of separation will be deemed their sole and separate property and is not subject to division at divorce.

However, business interests are not static. Businesses often grow over the course of time. As a result, a separate property business that was acquired before marriage but experienced substantial growth during the marriage may be attributed to community property. If, for example, community property funds were used to fuel the business’ growth or the efforts of the non-owning spouse were to thank for the growth in question, such growth may be characterized as a community growth subject to division upon divorce.

Dividing Business Interests

Dividing business interest isn’t like dividing property between storage space, money in a bank account, or financial investments. The value of a business is more than just the sum of its assets and liabilities. The spouse who was primarily involved in the operations of their business in question has a significant interest in continuing business operations after divorce. A court is unlikely to split business interests in a way that gives one spouse equal voting rights for business decisions to competing spouses, especially where one spouse had virtually nothing to do with running the business in question.

In such cases, a California court could allow the owner-spouse to buy out whatever community interest the other spouse might have in the business. This lets the nonowner spouse cash out their community interest while leaving the res[ponsibility for running the business with the more experienced spouse. Alternatively, a court can order the sale of the business and make the parties divide the sale proceeds equally between each other.

Get in Touch with Hanson, Gorian, Bradford & Hanich for Legal Advice

If you are going through a divorce that involves substantial assets, such as publically traded stocks, retirement accounts, and small business interests, you should seek the experienced legal advice of a divorce attorney from Hanson, Gorian, Bradford & Hanich. We offer practical and effective legal solutions for residents and families in Southern California with offices conveniently located in both Riverside and Temecula. You can count on us to zealously advocate for you and your family’s best interests.

To schedule a free consultation about your divorce, call us at (951) 506-6654 or contact our office online today.


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