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How is property divided between divorcing business owners?

On Behalf of | Oct 14, 2021 | Property Division

Owning a business with your spouse in California can be exciting. You’re partners in your marriage and in your company. However, if you end up getting a divorce, property division might impact your business. You should know how it’s divided when you and your spouse are divorcing.

What is considered marital property?

During a divorce between spouses who co-own a business, the court will take into account what’s considered separate versus marital property. While separate property is the property each party owns independently, such as things they owned prior to the marriage, marital property is subject to property division. Marital property is anything both spouses acquired jointly since getting married. As a result, if the business is jointly owned by both parties since they married, it might be affected when the two divorce.

What happens with business ownership during a divorce?

Divorcing spouses who co-own a business in California should know they live in a community property state. If you and your spouse started your business together as co-owners, it’s considered joint property. However, if one party owned the business prior to the marriage, the company would not be considered joint property once you go through a divorce.

In some cases, however, if one person owned the business before the marriage and their spouse joined later and significantly contributed to it throughout the marriage, the business might be considered marital property. This could even stand if one party ran the business while the other focused on things going on at home.

Co-owning a business with a spouse with a prenuptial agreement

A prenuptial agreement is the best way for a person going through a divorce to protect their business from property division. However, a prenup wouldn’t be able to help if two spouses started a business together or if one party started a business after getting married. A postnuptial agreement might be the better option if the business was established only after the marriage took place.

Property division can be complex during a divorce when a business is involved. If you want to protect your business and prevent it from being something contested in your divorce, it’s important to take action beforehand.

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