When going through divorce, it is important for business owners to take steps during the asset division process to properly value the business.
A family business counts as “property” in the eyes of the law, but it is important to understand whether part or all of it is marital or separate property.
Is your business separate or marital property?
The Judicial Branch of California discusses how businesses appear in the eye of the law. As mentioned, they can count as either marital or separate property, i.e. owned by both parties in a couple or owned by only one.
When a court decides who owns a business, they will look at several factors. This includes the person who started the business, and when they started it. Businesses started before the marriage are typically considered separate property. Businesses built or bought during the marriage, on the other hand, count as marital property under state law.
Potential exemptions to property status
However, there are some potential exemptions to this rule. For example, even if one partner bought the business before the marriage, what if it made the most growth and revenue over the course of the marriage? This is part of the business valuation itself, along with factors like changes that a business went through over the course of the marriage.
The involvement of both partners in the business itself is also often taken into consideration. In other words, it is often handled on a case-by-case basis. This is why it is a complex issue that takes a lot of time to work through.