What happens to a small business in divorce?

| Jun 14, 2021 | Firm News |

Financial and child-related issues in divorce cause some of the most frustration and conflict. If you own a small business, your financial separation may prove even more complicated.

What happens to your business should you find yourself on the path to divorce? When it comes to how California law handles splitting a business, most of it depends on when you started it.

Community property versus separate property

A business has value and, as such, goes into the mix with property division. Like other property, when and how you acquired it determines how it proceeds through the divorce. The law considers anything acquired or gained during the course of your marriage community property and subject to division. Thus, a business started after you wed will become part of the community property. If you started your business before your marriage, the court may view it as separate property. Unlike other separate property, however, the court may decide your spouse should benefit from it.

Valuation of your business

Your business will go through a valuation regardless of when you started it. This helps to establish how successful it was at the start date and beyond. This allows the court to determine whether your business became successful after your marriage because of your spouse. For example, if you had children and your spouse stayed home so you could work, it allowed you the time to devote to growing the business. The court may consider this proof that your spouse was an integral part of the business’s success and, therefore, divide it accordingly.

You do not need to sell your business during a divorce, even if your spouse has a claim to it. However, there are other ways you may compensate your spouse to satisfy a judge’s order.