Some consider family business to be the backbone of our economy. In fact, they comprise over 60% of our
nation’s employment and 78% of new job creation. Studies have also shown that a business controlled by a family may exist longer than companies that are not owned and run by a family. The divorce of an owner may threaten that longevity. With the right processes and paperwork in place, dividing the family business doesn’t have to lead to a family feud.
Pre-Marriage Planning
This is the best place to start protecting a family business but is often overlooked. A strong prenuptial agreement may address the issue of business ownership, especially if the family business predates the relationship.
A family business that starts
during the marriage may be a little tougher to divide.
Valuing the Family Business
Usually, the parties need to know how much the business is worth before negotiating their settlement. The parties first may need to determine whether the business is community or separate property. If the business is separate property, did it increase in value during the marriage? The judge will need to know about the assets, accounts receivables, debts, and more.
If the business itself or any increase in value during the marriage is counted as community property, courts and attorneys may calculate the value of the family business through:
- Pereira accounting often used when the business increases in value due to the non-owner spouse’s efforts.
- Van Camp accounting typically used when an increase is due to the economy or the business itself.
After the nature and value of the property are established, the parties may move toward settlement.
Negotiating the Divorce Settlement
The parties may decide to address the
family business assets in several ways, including:
- Buy-out. One spouse buys the other spouse’s interest in the business.
- Sale. The parties sell their business interests and split the proceeds in a mutually agreeable way.
- Working together. If the couple both worked at the family business, they might agree to continue working together.
The very nature of the family business may make negotiating even more emotional and stressful. Having a California divorce lawyer by your side can help.
It’s Complicated.
The attorneys at the Law Offices of Judy L. Burger are experienced at all phases of divorce proceedings, including business valuation.
Judy Burger is a California Certified Family Law Specialist, and founder of the Law Offices of Judy L. Burger. Please call our offices at 415-293-8314 to set up an appointment with one of our attorneys. We assist clients along the Northern to Central California Coast.
