Is the spouse entitled to half the business in a divorce? This is a frequently asked question when an individual owning a business initiates divorce proceedings. After working diligently for years to build a successful business you are anxious about your divorce’s impact on it. Whether your business was set up before or after getting married, divorce can affect the business, depending on factors like: When your business was founded? What was your spouse’s actual involvement in the business? What is your financial obligation to your significant other. The valuation of your business and any existing prenup or postnuptial agreement that you signed.
Is a Business Considered Marital Property?
If owning a business and possibly your largest financial asset, it’s classification during divorce proceedings, is important. As California is a community-property state, property is either marital property (shared) or separate property (individual-owned). Assets acquired during marriage are considered marital property and may include your business. When dividing a business, several options exist if a spouse buys the other’s interest in the company, or the business is divided between both parties, or the business is sold and profits split between spouses, or business operations continue, with both retaining respective interests amidst an effective, professional relationship.
Protect Your Business While Going Through a Divorce
During your divorce process, protecting your business is important. However, every divorce is different, and you need to initiate steps to ensure a favorable outcome. Many couples start their marriage with a small business with little income or savings and do not expect the business is worth millions after a decade. No due diligence is done to protect the business so spouses gain a stake in the business for sacrifices and work put into the business. If owning a business, you must protect it.
Limit the Spouse’s Role in Business and Assets Control
If your divorce is imminent, then start limiting your spouse’s role in everyday dealings and activities as spouse’s role in building and operating the business will be evaluated. Sacrifice some assets to retain control of the business or secure an agreement to buyout your ex’s share during a share sell-out in the future.
Current Revenue Valuation
The business valuation method used to determine the business value if based on projected growth, leads to gross overpayment in any settlement. A fair market value based on current revenue valuation is preferable. A neutral valuation expert should evaluate the business.
Arrange Payments for Business Control
To divorce-proof your business agree to payments to a partner over time. Payments made over time allows business growth and a spouse receives 10% of business profits till settlement is satisfied. If your business already exists and you are getting married, have a prenuptial agreement, allowing the business as non-marital property. If your spouse helped in the business, the pre-nup may be challenged. Businesses could be placed in a trust which becomes the business owner. A buy-sell agreement can be discussed with your lawyer, among other things, to define the business future in a divorce.
Trust Your Lawyer for Guidance
As a business owner, it is very distressing to have your personal life affect your business directly. Be careful about handling the situation. Your lawyer is your resource to protect your business interests during your divorce. An experienced attorney answers all such queries and helps navigate the entire process while protecting your interests.