Dividing the Family Business To Feud or Not to Feud

Dividing the Family Business: To Feud or Not to Feud

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.
Property Division in a Community Property State (Like California)

Property Division in a Community Property State (Like California)

When Julie and Jackson married, they were both in their early 30s. Both were successional professionals who had lived on their own for years. After an 8-year marriage, they decided to divorce. Then the fun began – each had brought assets and debt into the marriage. Together, they had continued buying real estate, art, books, automobiles, and household goods. Their attorneys advised them of how property division works in community property state like California. Of course, they had never given it much thought until their divorce. Julie and Jackson were not sure whether their belongings were community property or not.

State Laws on Property Division

Each state in the United States has its own divorce laws, including laws about dividing the divorcing couple’s assets and debts. There are two primary ways to split marital property:
  • Equitable Distribution. Most states follow this type of property division. Courts grant marital assets to the parties as a fair and equitable distribution.
  • Community Property. A few states use the community property system. It is assumed that the spouses have equal interests in the marital property. Assets – and debts – may be split equally between the parties.
States even differ in the way they hand equitable distribution and community property. That’s why it is important to understand the laws of your state.

How Community Property Works in California

Deciding what is ‘property’ may be the first step in a divorce. Generally, property is anything that can be bought or sold or anything that has value. For example, Julie and Jackson own a house and each has a 401(k) plan. The house can be bought or sold, and the 401(k) plans have value. Therefore, the house and 401(k) plans are property that will be divided as part of the divorce settlement. A couple may negotiate a marital settlement agreement that splits their property to their satisfaction. Even so, it’s a good idea to have an experienced divorce attorney help. It’s not always easy to figure out what is property, community, or otherwise. If the parties are unable to reach an agreement, a court will divide their property based on California community property laws. According to California Family Code, courts generally start with the presumption that the couple’s community property will be divided equally. However, courts may weigh in on whether an asset is separate or community property. Also, the court may award more than 50% of the assets to one spouse based on “economic circumstances.” When one party commits domestic violence or misappropriates funds, courts also have the discretion to award more assets to the innocent spouse.

Community Property Division Is Not Always Easy.

Finding assets and determining their value, as well as whether the asset is separate property or community property, requires deep knowledge of California divorce laws. 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.
When Your Spouse Has Multiple Residences

When Your Spouse Has Multiple Residences

Larry and Gina married in Texas but lived in several states during their 28-year marriage. In fact, they still jointly owned houses in Texas, Pennsylvania, and Illinois. The couple enjoyed the extra income from renting the properties and hoped to retire to one of the properties one day. When Larry decided to file for divorce, he was living in California while Gina still lived in Illinois. He wasn’t sure how to handle a divorce when he and his spouse have multiple residences, in multiple states. This sticky situation arises more frequently than you might imagine.

Residents of California

To file for divorce in California, you must meet the following residency requirements:
  • You must have lived in California for the last 6 months; AND
  • You also must have lived in the county where you plan to file for at least the last 3 months.
Notice that only the person filing the divorce is held to these residency requirements. Problems occur when one spouse lives out of state or the couple own property in more than one state. However, filing the divorce petition is only the first step in the process. At some point, the parties will have to consider how to divide property that is not located in California.

Property Outside of California

California courts typically do not have the power to control property located in other jurisdictions. While the judge can make decisions about a divorce case filed in California, it may not have the power to divide out-of-state property. This situation is called a divisible divorce. It may be necessary to hire attorneys practicing in states where the other property is located to handle property division.

Divorce When Your Spouse Has Multiple Residences Can Get Complicated

You may have to give careful consideration about the best jurisdiction in which to file your divorce. Discuss your options with an experienced divorce attorney as soon as possible. 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.
What to Do When Your Royalties Last Longer Than Your Marriage

What to Do When Your Royalties Last Longer Than Your Marriage

Joyce, a successful singer/songwriter, recently married her high school sweetheart. Aspiring novelist Kristen and her agent have been married for eight years. And Jack has spent countless hours in his garage workshop honing his creations hoping for a big payoff someday with the help of his wife of eleven years. Each of these people may find themselves facing a tricky issue if they decide to divorce – what to do with the royalties earned from their creative works or inventions.

Dividing Property in a Divorce 

California is one of nine states that use community property as the basis for property division. This means that property and debts obtained during a marriage are presumed to be owned 50/50. Splitting a bank account between two people is fairly easy. However, dividing less tangible assets – like royalties – typically is more difficult.

Royalties, as Property

A royalty is a sum of money paid to another person in exchange for using their property. Royalties may be paid to use someone’s:

  • Music,
  • Art and photographs,
  • Books, short stories, and other types of writing,
  • Minerals (sometimes these are called mineral rights instead of royalties), and
  • Items that are patented or copyrighted.

An item that generates royalties is an asset, as is the income generated. In fact, royalties typically are reported as business income.

Dividing Royalties

Property division can be a major part of a divorce case. A couple’s assets generally are separate property, community property, or commingled. How royalties are split may depend on when a royalty-producing work was:

  • Created – Was it before or after the wedding?
  • Patented – Was the invention developed during the marriage with contributions from the spouse.
  • Managed – Did the spouse contribute to the work’s success during the marriage.

Generally, work product or inventions created or developed during a marriage are community property. If the work was done prior to the marriage, but the spouse contributed to its success in some way, royalties could be split. Finally, an invention created during a marriage but not patented until after the marriage may still generate income for the ex-spouse.

A divorcing couple can certainly address royalty issues when negotiating their marital settlement:

  • Estimate the current and future value of an asset, then assign percentages to each party.
  • Swap ownership and royalty rights for property of equal value. For example, one spouse might keep 100% of a music portfolio and give the other spouse 100% of the Malibu beach house.
  • Agree on a split of ownership and royalty rights. This can even be done in a way that slowly phases out one spouse.

Complicated divorces involving royalty-producing assets typically involve more than state divorce laws.

Royalties May be a Double-Edged Sword.

They are an undeniably important asset and a potential source of income. The spouse who produces the intellectual property or work of art may want to keep all the royalties. However, that person’s spouse may be entitled to a percentage.

Judy Burger is a California Certified Family Law Specialist, and founder of the Law Offices of Judy L. Burger. She uses her extensive experience with business-related valuations to help clients with business and royalty properties. 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.

Community Property FAQs

Community Property FAQs

California is a community property state. Everyone says that, but what does it really mean? The following questions tackle a few of the questions you may have about community property.

When one spouse makes more money than the other, will their property still be split 50/50?

Divorcing couples negotiate an agreement called a divorce settlement. The division of the community estate is decided by the couple and their attorneys. Couples may agree to split that is not 50/50.

However, when couples are unable to agree, then the court gets involved. To arrive at a fairly equal division of assets and debts, courts may award part of the community property to one party based on economic circumstances. And, remember that income is considered community property in California.

Is an inheritance received during a marriage considered community property?

Property that is inherited by one spouse usually remains the separate property of that spouse unless one of the following two conditions occurs:

Commingling. The nature of an inheritance changes if the receiving spouse mixes, or commingles, the inheritance with community property.

For example, if Rosie keeps the $120,000 cash she received from her grandmother’s estate in an account that only she owns, her husband John generally can’t take it in the divorce. If Rosie instead deposits the cash into the joint account she has with John, the inheritance is now community property.

Transmutation. This occurs when the spouse who received the inheritance takes action that shows an intent to make the inheritance community property.

Using the example above, Rosie receives the $120,000 inheritance and puts it in a separate account. However, she later uses the money to buy a home that she titles in both her and her spouse’s names. She has transmuted the inheritance from separate property to community property.

A spouse who has commingled or transmuted separate property can request reimbursement if the separate property contribution can be traced back to its source. Rosie could ask to have her $120,000 returned, but she would have to prove that the money came from her inheritance. Keeping accurate, up-to-date records is critical.

Does community debt include a spouse’s credit card bills?

Debts incurred during a marriage are typically community debts.

For example, John uses his credit card to buy a wardrobe full of Louis Vuitton while still married to Rosie. His credit card bills are considered community debt and will have an impact on the value of the community estate. When dividing up their assets and debts, John could take the Louis Vuitton and the debt. However, creditors don’t really care about divorce settlements and may come after Rosie for payment if John defaults.

Is a house purchased by one spouse before marriage considered community property?

When spouses buy a house together using community funds, the house is community property. A house purchased by one spouse before the marriage is the separate property of that spouse.

However, the issue can become complicated if community funds were used for the mortgage or other house-related expenses. Also, the spouse may be found to have an interest in the home if the couple was married for a long period of time.

Call to learn more about community property.

It’s not always easy to understand which assets are considered community property and which ones are not. An experienced California divorce attorney can help you understand how much financial information needs to be disclosed.

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.

Who Gets to Keep Pets in a California Divorce or Separation?

Who Gets to Keep Pets in a California Divorce or Separation
In some divorces or legal separations, one of the foremost concerns is what will happen to family pets. Many of us treat pets like family.  We may even ask for “custody” of them.  But the California courts treat pets as personal property, not like children.  Therefore, no one can obtain “custody” of a family pet.

Perhaps the clearest way to deal with pet “custody” issues is to avoid them in the first place.  Before you are married, include post-marital pet issues in a valid prenuptial agreement.  In such an agreement, you can deal with how you want your personal property to be split; this can include the treatment of pets.

If you didn’t have the foresight to include pets in a prenuptial agreement, all is not lost.  In most circumstances, it is best to cooperate with your soon-to-be-ex.  If your pet is important to you, you may wish to compromise on other issues in order to obtain possession of your animal.  The two of you may even agree to an informal arrangement for where the pet will live, or even for visitation.

Under normal circumstances, it is best to agree on the arrangement for the family pet.  However, if the parties cannot agree, the judge will decide who receives the pet.  Here are some likely considerations:

  • The connections of the pet with the parties and the children;
  • The pet’s primary caretaker; and
  • Acts or threats of violence against the pet, the other party, or a minor child.

This last factor can be particularly important because California has a statute designed to protect pets. California Family Code § 6320, which became effective in 2014, allows courts to take actions to protect personal property from destruction.  If a party can show “good cause,” a court can do two things: (1) grant the exclusive “care, possession, or control” of a pet to the appropriate party; and (2) order a party “to stay away from the animal and forbid” the taking or disposal of the animal.

At the Law Offices of Judy L. Burger, we understand how important family pets are not only to a couple but to their children.  Pets can provide stability and love in a time of instability. Make the call today to learn how our attorneys can advocate for you: (415) 293-8314.

How Is a Business Interest Valued in a California Divorce?

How Is a Business Interest Valued in a California Divorce?

For those going through a divorce or contemplating one, a common concern is how a business interest will be treated by the court. Sometimes, both spouses own a business together. Other times, however, only one spouse has an ownership interest in a business.

By law, California courts must make a substantially equal division of community-owned property. Therefore, the first step in deciding how to deal with a business ownership interest is to determine whether it is separate or community property. It may even be a little of both. If you are not familiar with basic property law in California divorces, please see our separate blog here.

If the couple started the business together and operated it together, the court will likely decide it is a community-owned asset. However, often, business ownership is not so clear. For example, sometimes, a business was started before the couple married. Other times, although one spouse may be the owner “on paper”, the other may have worked in the business and contributed substantial value to it. In more complicated cases such as these, the court will need to decide issues such as the value of the business at the time of marriage and the present, the value of spousal contributions to the business, and other difficult factual questions.

It is usually necessary, in these cases, to retain a forensic accountant. Forensic accountants are trained in both accounting and investigative techniques. For this reason, they can be invaluable partners in determining the value of a business and in presenting their valuations to a court.

Forensic accountants are experts at detecting irregularities in company records. Their findings can help demonstrate, for instance, if one spouse has altered company records to make it look like a business is more or less profitable than it really is. Ultimately, the accountant will give an expert opinion about the value of the business. One of three methods is typically used:

    • the income approach, which attempts to value future economic benefits;
    • the market approach, which compares the business to others that have recently been sold; and
    • the asset approach, which compares the relative assets of the business to its liabilities.
If the parties do not agree about how to divide a business ownership interest, the court will divide it for them, keeping in mind that their community property must be divided substantially equally. How this takes place is within the court’s discretion. Options available to it include awarding the business to the spouse who plays the greatest role in its operation, awarding it to the other spouse, dividing the stock ownership among the parties, and ordering the sale of the business.

Business ownership interests are among the more difficult issues that arise in family law, and how they are handled can affect the parties for the rest of their lives. The attorneys at The Law Offices of Judy L. Burger have extensive experience in all matters relating to property division, including dealing with business interests and forensic accounting. Make the call today to learn how our attorneys can protect your financial future: (415) 293-8314.
Who Gets the Family Home in a California Divorce?

Who Gets the Family Home in a California Divorce?

In a divorce, one of the most significant concerns is what will happen with the family home. This is particularly true when minor children are involved.

The family residence is often the largest asset owned by the parties to a divorce, so the financial interest is often significant. In addition, there can be a sentimental attachment to the home. For these reasons, dividing the parties’ interest in the family home can be easier said than done. The first task is to decide who actually owns the house. You can learn more about determining basic ownership interests here.

It is not always easy to apply property law when dividing the family residence. For instance, what happens if the down payment was made with separate property funds? What if both parties contributed to pay down the mortgage while they were married, but the home is titled in just one name?

When there is a community property interest in the residence, there are three basic ways it can be divided: (1) sell the property outright and apply the profits toward the couple’s community property estate, to be divided; (2) one spouse buys out the other’s interest, assuming the purchasing spouse has adequate funds or credit to do so; and (3) deferred sale.

The first two of these options are fairly straightforward. However, a “deferred sale of home order”, also known as a “Duke” order (named after a significant case on the issue), requires some explanation. Deferred sales are usually considered when the parties have minor children and want the children to be able to stay in the family home until a later date. A custodial parent, in these situations, is given exclusive use and possession of the home on a temporary basis so that the kids can stay there.

In determining whether to allow a deferred sale, the family court must first consider whether it is economically feasible to do so. The court must balance the relative hardship of the parent and children staying in the home with the hardship placed upon the parent no longer living there. The law requires that certain factors be considered in making these determinations. It also requires that the deferred sale of home order contain an end date, such as the date the youngest minor child attains the age of majority or graduates from high school.

In addition to the disposition of the home, the family court will have to determine whether one party must reimburse the other for “contributions for the acquisition of property”. These reimbursements may be required if one party made the down payment on the family residence out of separate funds. They may also be required if separate funds are used to pay down the principal on the home.

As you can see, many factors impact how the family residence is handled in a divorce. How these issues are presented can significantly affect your outcome. Judy Burger is experienced in complex property division matters and how to present those in family court. Please contact her today at (415) 259-6636.
How Are Stock Options Divided in a California Divorce Proceeding?

How Are Stock Options Divided in a California Divorce Proceeding?

When a couple divorces, it is easy to divide physical items. One of the parties simply takes possession of items such as home furnishings, tools, jewelry, and even cars. Other property is more difficult to evaluate and divide. This is the case with employee stock options.

Stock options are granted by a company to an employee, usually managers and executives. Stock options represent the right of the employee, at some point in the future, to purchase company stock if he or she chooses to do so. Sometimes, a company gives an employee stock options to attract the employee to come to work for it; other times, a company offers stock options to try to keep an employee or to compensate him or her for future work. If and when a stock option “vests”, the employee has the right to buy the company’s stock.

A basic understanding of property rights in California is essential to understanding how family courts deal with stock options. You can learn more about these rights here.

In addition to understanding basic property law, it is important to understand what the term “vest” means in relation to stock options. The date a stock option “vests” is the date upon which an employee has the right to buy the stock. This is known as “exercising” the option right.

The first step in determining how to handle stock options in a divorce is deciding who owns the option. Courts have broad discretion on how this is done. However, two different approaches are typically used, both of which are named after the cases that established them. They are known as the Hug formula and the Nelson formula; they are also known as time rules. In essence, the sooner after the date of separation an option vests, the larger the community interest in them.

Which formula is applied, usually depends on the reason the company offered the stock option in the first place. The Hug formula typically applies to options that were given to the employee to attract him to work. The Nelson formula is usually used when the options were offered to keep an employee or to compensate him for future work. While many people assume that options that vest after the date of separation are separate property, this is simply not true when the Nelson time rule is applied.

Valuing stock options properly requires an attorney who understands all the law and who is experienced in making the strongest arguments for her client. To obtain the counsel of just such an attorney, please contact the Law Offices of Judy L. Burger. We have extensive experience in divorce, child custody, and child support matters. Call today to learn more: (415) 293-8314.

Basic Property Rights Law in California Divorces

Understanding the basic rules of property ownership in California is critical for anyone going through or contemplating a divorce or legal separation. Property may be owned by a spouse separately, meaning that it is his or hers alone, or it may be held as community property, which means that both spouses share it equally. It is important to understand the difference because, generally, a spouse has no right to any portion of the separate property of the other. On the other hand, California law provides for equitable division of community property.

Property acquired before a marriage or after a married couple separates is considered to be separate. In addition, property given to or inherited by a party during a marriage is considered to be separate. In most cases, a person has no right to the separate property of his or her spouse.

California law assumes that property acquired during a marriage is community property, which means that each spouse holds a one-half interest. Both spouses have an ownership right to one-half of community property, regardless of who actually acquired the property. In determining whether property is separate or community, the date of separation is critical. In fact, the date of separation is sometimes hotly contested for this reason. The date of separation is established, by law, as the date on which two things occurred: (1) one spouse subjectively made the decision that the marriage was over; and (2) that spouse took an objective step to implement his or her decision.

With titled assets, such as homes, cars, and boats, a second property law presumption may come into play. The California State Legislature has passed a law that the“owner of the legal title to property is presumed to be the owner of the full beneficial title”. This means that a court will assume that the name of the person on title to property is the full owner of that property. It takes strong evidence to overcome this presumption.

As you might imagine, the community property presumption and the legal title presumption can often be in tension with one another.

There are many nuances in California statutory and case law that impact property division, and the proper presentation of property issues can significantly affect your outcome. Judy Burger is experienced in complex property division matters and how to present those in family court most favorably to her clients. Please contact her today at (415) 259-6636.