Divorce is much more complicated for business owners, particularly financially, than it is for others in California. After working hard to build your business, it is important to take the right steps to protect the enterprise and ensure you emerge from the divorce process positioned advantageously and not struggling under a load of impossible obligations.
The Certified Family Law Specialists at Holstrom, Block & Parke know how to assess all the factors that require strategic handling during and after the divorce process. These factors are different in every situation, but here is a general overview of the financial issues business owners need to address in a California divorce.
Your Business is Probably Community Property
Unless you executed a prenuptial or postnuptial agreement specifying that the business would remain the separate property of one spouse, then the value of at least part of the business is probably considered community property, even if you owned the business before you got married. California’s community laws consider amounts you earn during the marriage to be jointly-owned marital property belonging equally to both spouses. This is particularly likely to be true if your spouse contributed to the business in any way, such as maintaining the home while you focused on building the business.
This means that as part of the process of dividing marital property, you will need to assess the value of your business, determine how much of that value is community property, and develop a plan to either buy out the other spouse’s interest or to share financial interests and control after the divorce.
Do You Have a Business Succession Plan?
Many partnerships and privately-held corporations in California have plans for business succession, such as buy-sell agreements among owners. These generally provide structure for handling interests when one owner goes through a transition such as a divorce. A comprehensive business succession plan should include a method for establishing the value of the owner’s interests and strategies for transitioning those interests.
These plans can make it much easier to ensure that business operations continue uninterrupted so that the business maintains viability and value regardless of what happens during the divorce process.
If you don’t have a plan for business succession, you need strategies to keep business operating as close to normal as possible for the sake of both spouses. It does neither party any good to decrease the value of such an important marital asset.
Valuing Business Interests in California
Setting a value on a business is both an art and a science, and in divorce, both parties have interests that are often at odds when it comes to the result. It often works most effectively to agree on a neutral third party to perform a value evaluation.
Providing the most detailed information about obligations as well as assets can help ensure that the valuation is accurate. When you work with an attorney who is experienced in protecting business interests in divorce, your attorney can also keep watch over specific interests such as managing intellectual property and maintaining the value of unique assets.
Business Ownership Impacts Alimony, Child Support, and Custody in California
In addition to determining an accurate value and the appropriate percentage of the business to be treated as community property, a business owner who is divorcing in California also needs to be mindful of the effect on spousal support (alimony), child support, and parenting plans. It will be necessary to calculate a reasonable income figure for the spouse who works in the business. If both spouses receive income from the business, that will complicate matters still further.
Spouses seeking child support or alimony from a former partner who operates a business often present calculations based on unrealistic income figures that can cripple the cash flow needed for business operations. At the other end of the spectrum, business owners can often find ways to hide income and assets, so it may take a thorough investigation to gain an accurate financial picture.
Buy Out, Sell, or Continue Joint Operation?
Every business is unique and every family situation is unique, so the best solutions for handling business interests in divorce often require a creative approach. While you might want to buy out the other spouse’s interests, that may not be immediately feasible or advisable. A spouse might consider retaining economic interests in the business for a set period of time. Or couples who are capable of working together might continue to do so after the divorce. In this type of situation, it is helpful to have rights and obligations specifically spelled out in a detailed written agreement.
In some cases, the most economically sensible approach is to sell the business and start fresh with a new enterprise after the divorce. When you work with an attorney who understands the issues, your legal advisor can help you evaluate your options and formulate the right plan based on your specific needs and goals.
Get the Advantage of 300+ Years of Collective Experience in Handling Tough Issues in California Divorce
The team at Holstrom, Block & Parke, APLC has extensive experience handling intricate cases involving challenging issues associated with business ownership and complex assets of high value. We develop strategic plans to protect the full range of business owners’ interests in divorce. For a confidential consultation to learn more about the protection we can provide in your particular case, contact our team today.
