For business owners, their company is more than their job. It’s their creation, something with nearly as much personal investment as most relationships. Businesses take up their owners’ time, resources, and attention—so it makes sense that entrepreneurs want to protect their businesses in a divorce, as much as they might want to protect a family heirloom or loved one.
For Californians, that might be easier said than done. In most of the country, divorce falls under the Equitable Division rule. That means in the case of a divorce, yours and your spouse’s belongings will be divided according to certain factors. These factors will ideally result in an “equitable” (fair) split, though not necessarily an even one.
Equitable Division factors include:
- Length of the marriage
- Spouse’s financial contribution
- Spouse’s investment into the business
Unfortunately for potential clients of Gille Law Group, California is one of the few states that operates by a Community Property rule. That means your business, if considered marital property, is equally owned by both spouses, regardless of time or money spent developing it.
Is My Business Marital Property or Separate Property?
All property in a divorce proceeding is divided into two categories: marital and separate. Separate property is not divided in a divorce, and legally belongs entirely to the spouse who possesses it. Does that apply to your business? Consider the factors that determine separate property:
- All property owned by the spouse prior to marriage
- All property received by inheritance or gift
- The rents, issues, and profits of separate property
If your business was established prior to your marriage, it could be argued that your business is separate property. Make sure that you have awarded yourself a competitive salary however—without taking home a competitive salary, your spouse may argue that the money your household's resources were invested in the business, making a case for division of your business.
I Started My Business After Getting Married—What Can I Do?
If you want to keep your business entirely under your ownership after a divorce, but the court decides you and your spouse own the business equally, you may be able to buy out your spouse’s interest. Essentially, you’d pay your spouse for their share in your business in return for keeping it.
You can either trade equity in your marital property or agree to a structured settlement to accomplish this. A structured settlement would essentially set up a loan between you and your spouse. If you owned your spouse $100,000 for their 50% share in your business, you could create an agreement before the court to pay your spouse in installments over time.
Using a structured settlement, you could conceivably keep your business whole and completely under your ownership after a divorce. This is, of course, assuming your business does not have a shareholder’s agreement of some kind. If it does, you may have even more options at your fingertips. Speak with our attorneys and certified family law experts at Gille Law Group.
We can tell you about the choices available in your specific situation in a free consultation. Call (626) 340-0955.