Married people in California considering divorce often have a lot of questions. They have likely heard stories about the state’s community property rules that make them nervous about what will happen with their financial resources if they move forward with a divorce.
People often worry about losing control of their most valuable property and not having the assets they need to rebuild their lives after separating their finances from their spouses. For many couples, a primary residence or retirement savings may be the assets that have the most value and are, therefore, the source of the most concern for people who are contemplating divorce.
However, if either spouse owns a small business or professional practice, that organization could very well be the biggest asset in play during divorce. Does the owner of the business automatically need to share half its value with their spouse in California?
Spouses must establish if their company is marital property
To determine whether the business is at risk of division in the divorce and how much of its value the spouses need to share, a careful review of financial and business records will usually be necessary. If someone already owned the company before marriage or if they inherited it, it could be at least partially separate property that is not subject to division. Particularly in scenarios where people protected the company with a marital agreement (a prenup or postnup), they may not need to worry about treating it as community property during the divorce.
If someone started a business or professional practice during the marriage or if they invested marital assets or income in the business, then at least part of its value could play a role in property division matters. Work by the non-owner spouse at the company, particularly work without adequate financial compensation, could also lead to a claim of interest in the company in some scenarios.
Dividing a business isn’t always necessary
Thankfully, the actual division of a company or its sale and the division of the proceeds generated won’t be the only way to divide the marital estate during a California divorce. Spouses always have the option of working with one another and potentially settling property division matters amicably. The courts might also recognize that the business should remain with one spouse even while factoring its value into other decisions about property division.
Those who want to protect a particular asset, like a business, may have an easier time achieving that goal if they set their priorities early in the divorce process. Making sense of California’s community property statutes by seeking legal guidance proactively can be a good starting point for those with assets they want to preserve.