How Do California Courts Treat Businesses in Divorce?

Divorce proceedings in California can be complex, especially when a business is involved. A business, whether it is a small family-owned enterprise or a larger corporation, may be considered a marital asset subject to division during divorce. Our San Jose family law attorneys will walk you through how businesses are handled in California divorce cases to best protect your interests.

Community Property

California is a community property state, which means that generally, all assets acquired during the marriage are presumed to be community property and are subject to equal division between the spouses during divorce. This includes businesses that were formed or acquired during the marriage. However, some nuances and exceptions apply.

Business Valuation

One of the critical aspects of handling a business in divorce is determining its value. Business valuation can be a complex process and may require the expertise of financial professionals, such as forensic accountants or business appraisers. The court will consider various factors when valuing a business, including its assets, income, debts, and the market conditions.

Equal Division vs. Other Arrangements

While California follows the principle of equal division, it does not always mean that the business will be split 50/50. The court may consider alternative arrangements depending on the specific factors of your case.

One spouse may buy out the other’s interest in the business, allowing one party to retain full ownership. In some cases, both spouses may continue co-owning and managing the business together, but this arrangement can be challenging and requires specific agreements to avoid conflicts. If neither spouse can agree on the terms of ownership or buyout, the court may order the sale of the business, with the proceeds divided between the spouses.

Separate Property Business

If one spouse owned the business before the marriage or inherited it during the marriage and kept it separate from marital assets, it may be treated as separate property. Separate property is not subject to division in divorce, except to the extent that the non-owning spouse made contributions or improvements to the business during the marriage.

Prenuptial and Postnuptial Agreements

Prenuptial and postnuptial agreements can have a significant impact on how a business is treated in divorce. These agreements can specify how the business will be handled, whether it remains separate property or how its value will be divided. However, for such agreements to be valid and enforceable, they must meet certain legal requirements.

Tax Considerations

Transferring ownership of a business during divorce can have tax implications. It’s essential to consult with tax professionals and financial advisors to understand the potential tax consequences of various divorce settlement options.

Schedule a Consultation with Foster Hsu, LLP Today

Handling a business in a divorce case requires specialized knowledge of family law, business law, and financial matters. At Foster Hsu, LLP in San Jose, California, our team of skilled family law attorneys has extensive experience in handling divorce cases involving businesses. We can provide you with the guidance and legal representation you need to protect your interests and navigate the challenges associated with business division during divorce. If you are facing a divorce involving a business, contact us today for a consultation to discuss your specific situation and legal options.