Photo of Professionals at McCoy Fatula, APC
Photo of Professionals at McCoy Fatula, APC

A business could be subject to property division in a divorce

On Behalf of | Feb 26, 2019 | Property Division

Marriage is not always forever, though most people in California enter into it believing that it is. The optimism isn’t a bad thing, but it can cause people to overlook certain things that could affect them during a divorce. One of those factors could be a business, which people often fail to realize could be considered property and subject to division as part of a divorce agreement. Experts do have advice for those who have questions about how a business should be handled during property division in a divorce.

First, spouses can draw up a formal contract, typically a prenuptial or postnuptial agreement. Such an agreement can outline how the business is valued or how any assets associated with it will be divided. One spouse could have the business considered his or her separate property, meaning it would not be considered community property and thus not subject to division in a divorce proceeding. If the business is an equal partnership, the agreement can state which spouse would need to buy out the other or whether the two intend to continue running the business together. If the value of the business increases during the marriage, that amount can be considered community property and an agreement can specify what percentage the non-owning spouse would receive in divorce.

If the spouses decide not to use a formal agreement, there are still ways for them to protect a business. One spouse can establish him or herself as the sole owner and that the business cannot be transferred, meaning the other spouse may receive cash instead. The business-owning spouse can ensure that he or she has documentation showing where the capital for the business came from and of any cash transactions. If either spouse collects a salary in conjunction with the business, even if one spouse doesn’t own the business, experts recommend both are paid at a level consistent with market rates. Otherwise, the non-owning spouse could argue that he or she should receive more alimony or make a claim for a larger portion of the company.

Those who have questions about how to handle a business as part of a divorce agreement may find the help of legal counsel beneficial. Business owners here in California can take legal precautions to protect their business in the case of divorce. Doing so can ensure that the company is handled correctly during property division proceedings.

FindLaw Network