What happens to a family business during a divorce? If this question keeps popping up in your head, you are not alone. In California, a business is considered an asset, which is subject to division during a divorce if considered marital property. Determining the value of a business requires the assistance of seasoned professionals, including accountants and appraisers. Today, we go over the basics of dividing a business during a divorce.
Steps to Take to Split Up A Business During a Divorce
The first step to dividing a business is to determine if the business is community property. If the business was started before the marriage, it will be considered separate property and not subject to division. If you started the company individually without your spouse and wish to claim it as separate property, you will need to prove this to the court. At this point, it would be advisable to consult with an experienced attorney to assist you.
The next step is to fill your lawyer in on the details of your business. Do you have a small business, a large business, or a corporation? You will want to obtain a business valuation to determine the worth of your company unless it is a publicly held company. In a business valuation, a comparative market analysis will be done.
It is important to note that if both spouses play an active role in the day-to-day operations of the company that it would be difficult to divide the business down the middle while continuing to be profitable.
What Are Your Options for Dividing a Family-Owned Business?
It does not make sense to divide a business if doing so would stop the business from being profitable. You may have the option of doing one of the following:
- Sell the business and divide the proceeds
- One spouse is awarded the business and the other spouse is given other assets
- One spouse buys out the other’s portion of the business
- Both spouses decide to jointly own the business (this only works if the couple can work together)
If you own a dental practice or physical therapy practice, you cannot have your spouse buy out your share of the company and function as an owner if he/she is not a licensed professional.
How Can You Protect a Business from a Divorce?
The best way to ensure a business is protected in a divorce would be to establish a prenuptial or postnuptial agreement. You can include a section on what you would like to see happen to the business in the event of a divorce.
Contact our firm online or by calling (916) 634-0067 to schedule a consultation to discuss your divorce situation.