California business owners may need to understand that their companies may be considered community property in the event of a divorce. This means that both spouses may be entitled to a share of the company’s valuation if sold or entitled to a share of future profits. However, judges rarely make business owners sell their company or assets within the company at the time of a divorce.
Doing so could deprive an individual of an employment opportunity or a means of providing spousal support. To increase the odds of a timely and fair divorce settlement, business owners are urged not to make any attempt to hide or transfer assets. They are also encouraged not to terminate or otherwise retaliate against a spouse who may be working for the company at the time of the divorce.
When determining how to split the proceeds from a business, a judge will look at many different factors. Most importantly, the judge will look at how much the company was worth before the marriage compared to its value after the marriage. If most of the growth took place before the marriage, the other spouse would be entitled to a smaller share as the business would have been considered a separate asset previously.
Property division can often be one of the most contentious aspects of a divorce, and when there are assets involved that are not necessarily subject to an easy appraisal, such as a closely-held business, it can become even more challenging. Many family law attorneys recommend to their business owner clients who are planning on getting married that a prenuptial agreement that addresses the issue of the company’s classification in the event of a subsequent divorce may be worth considering.