Divorce can be an emotional, stressful, and financially draining experience. Ending a marriage is never easy, but it is particularly challenging when married couples control business assets. If you are concerned about your ownership position or you are preparing to divide business assets in your divorce, you need to consult an experienced San Diego business division in divorce lawyer.
The attorneys at Neumann Family Law, A.P.C., have extensive experience handling all types of difficult divorce cases for clients in San Diego and throughout the surrounding areas of California. We understand the stress and uncertainty that your situation entails and want to help you reach a positive outcome.
Understanding Property Division in California Divorce
As part of the dissolution process, all property must be characterized and evaluated. In many circumstances, one or more businesses exist that belong to the marital community. Unless there is a prior agreement indicating otherwise – premarital or postnuptial – the business will be divided to the spouses equally as community property. Quite commonly the business will be a small family owned and operated concern, and as such, valuation cannot be determined in the same manner as a publicly traded corporation, which has stock and other measurable values. It is essential to obtain qualified advice from an experienced family lawyer to determine how to proceed in dividing your business.
The Three Essential Steps to Dividing Business Entities
California’s community property law requires each divorcing spouse to identify the separate property they intend to claim and produce financial disclosure statements so that shared community property can be evenly divided. This process can be very difficult when it comes to business entities controlled by divorcing spouses. There are three essential steps that are required before property can be divided in California:
- Characterization – whether the property is community property or separate property.
- Valuation – what is the value of each asset in the marital estate.
- Division – after the property is valuation it can be divided to the parties.
There are different methods that are utilized to assess the value of the business. Additionally, experts such as certified public accountants and tax specialists utilize their own particular methods during the process. It is absolutely essential to obtain the guidance of your family lawyer to help you during the various phases of the dissolution process.
If the characterization of a business entity is disputed in the divorce, your attorney can help you assess the truth of the situation. In some cases, one spouse’s separate property can be transmuted to community property during the course of their marriage. For example, if one spouse’s business appears to be their separate property, but the other spouse contributed to running the business during their marriage, the business may transmute to community property.
Similar controversies may arise when it comes to business debts. It is important to remember that under California’s community property law, both assets and debts can qualify as community property. If you intend to assert any ownership rights over a business entity, remember that you are also effectively seeking responsibility for a share of the business’s debts.
Businesses May Include Tangible and Intangible Assets
Businesses assets may vary considerably. Some assets are tangible and others are intangible. In most cases, but not all, tangible assets are easier to assess:
- Cash
- Property
- Machinery
- Equipment
- Inventory
- Account receivables
Intangible assets are often extremely difficult to assess:
- Patents
- Trademarks
- Copyrights
- Business relationships
- Unique skills
- Product development ability
- Business development in progress
- Many other
Valuation:
There are three basic approaches to measuring assets:
- Asset – value of asset minus liabilities
- Income – determining future income
- Market – determining the worth of the business in the present marketplace by comparison to other similar businesses
The process of determining the characterization of the business and the valuation of all of the business’s assets and debts can be tedious and time-consuming. Once you complete this initial phase of the division process, the assets and debts can be divided equally under California’s community property law.
The Public Policy Institute of California reported that in 2023, there were more than 1.7 million private sector businesses in California, and many are owned and operated by families or married couples. When it comes to the actual division of the business, it is possible for the divorcing spouses to have several options to accomplish this:
- One spouse may buy out the other spouse’s share of the business to assume full ownership.
- One spouse may offer their share of the business against other assets subject to division under the community property law.
- The spouses may continue as co-owners of the business. This will likely require drawing up new business entity agreements between the divorced spouses and clearly establishing ownership rights and responsibilities.
- The spouses may choose to liquidate the business or sell the business and then divide the proceeds equally.
You have likely put a tremendous amount of time and energy into your business, and it is natural to want to protect it as much as possible in your divorce. As of 2021, about 10.5% of women and about 7% of men in California have been divorced, and while the divorce rate in California has steadily decreased in recent years, it is still one of the most commonly filed family law cases in the state. Divorce can be difficult for anyone, but it is especially challenging for business owners.
The team at Neumann Family Law, A.P.C., can help you develop a strategy tailored to your needs and goals. Our attorneys have years of experience helping our clients navigate difficult business division disputes and will leverage that experience in your case.
Complimentary Phone Consultation with a San Diego Division of Business Entities Neumann Family Law, APC Family Law Attorney
If you are preparing to obtain a dissolution of marriage, or if you seek post judgment modifications, the Family Law Attorneys atNeumann Family Law, APC can help you in all aspects, including business division valuation and division. We have immense experience in all areas relevant to marital property division. We are experienced professionals and we deliver results. Business division can be extremely difficult and if you do not pay particular attention to detail it could cost you a significant amount of money. We utilize accountants, economists and other specialists when it is appropriate in order to come to a proper valuation. For a complimentary consultation with a Neumann Family Law, APC Family Law Attorney, call us at (619) 282-1107, or (760) 480-8400.
