Is Divorce Different if There is a Business?

When a couple divorces in California, their debt and marital property – the property they have accumulated and shared during their marriage – is subject to property distribution. Depending on your jurisdiction, it is either split equally (community property states) or equitably (equitable distribution states). Sometimes, marital property includes a business that the couple started together or, alternatively, one spouse started either before or during the marriage and continued to grow during the marriage. The business, under these circumstances, will also likely become subject to property division unless you take steps to safeguard it.

A divorce can affect every aspect of your life, including your business. How your business is affected will depend on a number of factors, including the law of the state that has jurisdiction. 

Some states are community property states which means that you may either have to: 

  1. split the business with your spouse, or 
  2. give your spouse other compensation equal to half of the value of the business. 

Other states use equitable distribution when dividing property. In these states, property is divided equitably or fairly between the parties. This may or may not be half of the business. Even so, it is likely you will be expected to give up at least part of the business, or its value, to your spouse. 

California is a community property state.

In assessing your rights and obligations as it pertains to a business interest, there are several factors that will have a significant impact on the ownership and potential allocation in dissolution proceedings:

  • Who owns the business?
  • When was the business acquired (before or during marriage)
  • Did you or your spouse inherit the business from family?
  • Is it clear that only one spouse supported and worked at the business?

If the business was formed prior to marriage, there are states that will maintain that it is premarital property and therefore not subject it to division. Also consider that in some states even if the business was started before marriage by one spouse, if the other spouse contributes to the business after marriage, it may be considered marital property, and therefore subject to being divided between the parties.  When a business was started during the marriage, it will most likely be considered marital property and therefore subject to division under the rules of the state with jurisdiction.

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