If you’re a business owner going through a divorce in California, protecting your company can quickly become one of the most important and complicated parts of your case. California’s community property laws mean that any business started or grown during the marriage could be subject to a 50/50 division. That’s why it’s essential to understand how courts evaluate business ownership, what factors determine whether your company is considered community or separate property, and what steps you can take to minimize the financial impact.
In this video, we’ll walk through the key strategies to safeguard your business, including the importance of keeping finances separate, using prenuptial or postnuptial agreements, and getting a professional business valuation. We’ll also explain your options for dividing a business, from buyouts to co-ownership, and when liquidation might come into play. Whether you’re preparing for divorce or already in the thick of it, this guide will help you protect what you’ve built.
If you’re concerned about your business, schedule a one-on-one consultation with Mohajer Law Firm. Protect your rights, your company, and your financial future.
Transcript:
Dividing assets at the time of divorce can be challenging in and of itself, but if you have your own company, you could be facing a whole set of unique challenges that you’ll need to overcome. In this video, I want to outline key steps to protect that company from being divided or even impacted altogether.
Hi, I’m Sina Mohajer with Mohajer Law Firm. We specialize in family law, estate planning, criminal defense, and personal injury. In these mini-series, I like to tackle complex legal issues and try to simplify them for our viewers to give you the information and know-how to handle your own case or perhaps your own legal situation. So if you like the contents of this video, hit that like button and don’t forget to subscribe so you’re always informed of any new videos being posted. Without further ado, I welcome you all to our new mini-series called A Walk in the Park.
How Does Divorce Affect Your Business Ownership?
So, how does divorce affect your business ownership? Well, you have to remember, California is a community property state, which means anything you acquire from the date of marriage to the date of separation is presumed to be a community asset and it needs to be divided equally.
Is Your Business Considered Community Property?
And the way the court will determine if your company is a community asset or a separate asset, it will look at the time the business was started and what funds were used. A potential outcome, if the court determines it is a community asset, is really three-fold.
One, you have the option of buying out your spouse of their community interest in that business. Another one is a co-ownership agreement, so you can continue owning this business together and splitting the proceeds accordingly. And the third option is business liquidation, which I’m sure all of us would like to try to avoid.
How to Protect Your Business
So, what are some legal strategies to take in order to ensure the protection and longevity of that business?
Prenuptial or Postnuptial Agreement
Well, one is a prenuptual or a postnuptual agreement. This is done usually either before or during the marriage, before it’s contemplated of having a divorce. And if you have questions about that in particular, there are other videos I’ve posted about prenuptual and postnuptual agreements, so please feel free to browse the library and get those answers for yourself.
Ownership Agreement
Another strategy is having a business strategy or an ownership agreement in place where you predetermine, for example, percentage ownership of each spouse and what happens if there comes a time where the two of you do get divorced.
Keep Business and Personal Expenses Separate
Another strategy is to always keep your business and personal finances separate. Try to
avoid using business funds for personal expenses. This muddies the water, where it’s very difficult for the court to determine if this is a separate asset. So the chances are, they’re going to fall back on the fact that it’s a community asset and it needs to be divided.
Determining Value
So, what happens if we do have to divide this asset? Well, before you can divide anything you have to know its value. And when it comes to a business, the court is most likely going to need an expert to come in and give a business valuation. Look at your books and figure out all the assets and the debts to determine what is the value, and that needs to be divided. You can use that particular figure also during your settlement negotiations.
How to Keep Your Business Without Liquidating It
And it’s key, if you’re trying to keep this business alive without having to liquidate it, you’re going to have only a couple options. One is to buy out your spouse of their interest. Or another way is to try to offset or trade other community assets in lieu of this particular business, so you can continue owning it on your own.
Contact Mohajer Law Firm to Protect Your Business in a Divorce
When things get complicated it’s always important to seek legal counsel. Having a seasoned family law attorney in your corner is going to allow you to avoid any costly errors or mistakes when dealing with your divorce and dividing this business. After all, you’ve worked hard to bring this business to life and for its longevity you want to make sure to avoid any foreseeable mistakes.
So, if you have questions about your particular situation, I welcome you to contact our office. I’m happy to sit down with you one-on-one to discuss your case in more detail.