Many couples own business interests. These can take the form of a business they own, operate, or hold a significant share. When couples decide to divorce, dividing business interests usually becomes a huge issue. After all, property division, which is itself very complicated, becomes even more complex when business assets are involved.
The Preliminaries of Dividing Business Interests
First, it’s essential to know what you are dealing with. Trying to divide property between spouses is impossible without certain information, including:
- Are the business interests separate or community property? In a community property state like California, most marital property and debts split roughly 50-50. However, is your business separate property – owned by one spouse – or community property – owned by both spouses? In most cases, separate business interests remain with the spouse who owns them. Community business interests are dealt with differently.
- Are there any agreements that affect property division? For example, did the couple sign pre-nuptial or post-nuptial agreements? If so, those agreements may address any business assets. Likewise, a buy-sell agreement may address how to handle business assets in the event of a divorce.
- How much is the business worth? Valuation of business assets is challenging and should not be attempted on your own. You and your divorce lawyer will discuss how to handle valuation, but you will probably need to hire an expert. Undervaluing your business is literally leaving money on the table.
After working through the issues mentioned above, along with any others that apply, you and your spouse can begin dividing business interests.
The Final Decision
Often, couples will use one of the following methods of dividing their business assets:
- The Buy-Out. One party can buy the other party’s interests rather than dividing them. In some cases, one spouse might be more vested in the business. The problem here is that the purchasing spouse must be liquid enough to complete the purchase.
- Dividing. The parties could divide the business equally. For example, if the couple owns 80% of the company’s shares, each spouse could take 40%. Alternatively, the couple could split the equipment, accounts receivable, and real property. This might work especially well for parties who own a professional services business.
- Selling to a Third-Party. In this scenario, the couple receives the cash instead of dividing their actual ownership interests. It’s still necessary to properly value the business.
- Continuing as Co-Owners. Some ex-spouses may remain so amicable that they simply continue owning and operating their business. This is rare and could be very risky. If the spouse’s relationship becomes rockier after the divorce, they may have to return to court to split the business for good.
Learn More About Dividing Business Interests
Please call us at (415) 293-8314 to schedule a confidential appointment with one of our attorneys. Ms. Burger is a California Certified Family Law Specialist and founder of the Law Offices of Judy L. Burger. We assist clients in California’s Northern to Southern Coast, including San Francisco, Beverly Hills, Marin, San Jose, Gold River, San Diego, Santa Barbara, Ventura/Oxnard, and surrounding communities.