What You Need to Know About Dividing Your Business in a California Divorce
In the State of California, a business can be considered community or separate property. Here is what you need to know about dividing your business in a California divorce.
Dividing a business in a California divorce can be complicated. Decisions are made based on the involvement of the spouses in the company. Therefore, if dealing with a judge, it is important to present information regarding the roles each partner had in the business during the marriage.
Determining the standing of the business
In the State of California, businesses can be divided based on whether they are considered community or separate property of the marriage. This information is typically determined in the marriage settlement agreement. If a property is considered community property, it is shared by both parties. However, this is not the case with all property.
Related: Community Property Laws in California
An example of separate property would be inherited assets by one party preceding the marriage. Additionally, if an individual owned a business preceding the marriage, the business will be considered his or her separate property in a California divorce.
How to decide how business assets be divided
There are two ways that business assets can be divided during a divorce in the State of California. One of these ways includes the spouses coming to a mutual agreement about the matter. The other method necessitates a judge’s involvement to make the decisions. Although generally easier, the first option is not always feasible due to the complexities involved in dividing a business.
Oftentimes, partners disagree on which partner should receive a majority of the business assets and liabilities. The duration of which the business has been owned and the level of activity each spouse contributes to the business make each case unique. Therefore, having an experienced attorney can be useful when dealing with these sorts of cases.
Related: How to Divide Property in a California Divorce
How the division of business ownership is officially determined
The division of business ownership is officially determined by a judge. This makes it imperative that all facts and evidence relating to the case are brought to court, as this information allows the judge to make better-informed decisions. Information that can help facilitate a fair division includes details on business operation and what roles the parties played in its functioning. Although business ownership can be given to just one party, it is more likely that the judge will grant division between both parties. Factors that make it more likely for the judge to grant division between both parties include both spouses being engaged in operations, as well as if the business was owned for a long duration through the course of the marriage.
Factors considered in dividing assets
Spouses’ involvement in the business plays a central role in determining the division of the business in question during a California divorce. Thus, factors that show partners’ different levels of involvement throughout the course of the marriage play a key role in determining who will be left with what.
Related: How to Protect Your Assets in a California Divorce
Some factors that influence how a business will be divided include:
The job or jobs a spouse has or had can influence how a business will be divided
For example, proving that a spouse works or had worked at a different job can demonstrate that the spouse was not or is not actively involved in the business. Showing that the spouse had no job can also demonstrate that they were not actively involved in the business. Even temporary involvement in another business can play a role in how the judge makes decisions.
If possible, be in charge of signing contracts
This demonstrates authority in the company. If a spouse signed contracts on behalf of the business, such activity would work in their favor due to their perceived significance within the organization.
Be aware of the debts the business may have.
Oftentimes, a judge will make a ruling about the distribution of debts (and assets) that involve the business. Thus, having information that can support why a spouse might be responsible for a particular debt can be useful in rightfully distributing such debt. The same applies to claiming rights to particular assets.
Check if a spouse is on registration documents
A spouse’s name being included on registration documents can allow them to have access to the company’s funds, regardless of whether or not they actively work for the business. This power can grant them the right to say they were actively involved in the business, and thus, can influence how the business will be divided after the divorce.
Acquire a business valuation
Oftentimes, judges will issue one spouse to buy out the other. Having a business valuation is, therefore, necessary to know the worth of the business.
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If you or a loved one have any more questions about dividing your business in a California divorce, contact us. Get your free consultation with one of our experienced Property Division Attorneys today!