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Is your small business safe during a divorce in California?

On Behalf of | May 17, 2022 | Blog, Divorce

Living in a community property state, you may have concerns about your small business during a divorce. California has guidelines to determine whether the small business is personal or marital property.

No spouse involvement

If you inherited your business, and your spouse hasn’t had involvement in the business, then California will most likely rule it’s your personal property. There is, however, another condition. You must not have mixed the business with your marital expenses.

Co-owners

When you and your spouse are co-owners, you will have to negotiate with them on what to do after the divorce. You could offer to buy them out if you feel strongly about running the business by yourself. It’s possible to continue co-operating the business, but this only works out well in rare situations. You and your spouse must have a good relationship. If you can’t stand being in the same room as each other, then it’s not possible to continue running the business together. Some people, however, find that while they work well in a business relationship, they aren’t compatible romantically. As long as neither of you has lingering feelings or bitterness, you could stay as co-owners.

You could work with a divorce mediator to help negotiate keeping your business if you find yourself in a situation in which your spouse has partial rights to the company. If you can’t come to an agreement on who gets to keep the business, then you will most likely have to sell the business and start over. In line with community property law, California would divide the value of your business equally.

Prenup or postnup

One way of keeping your small business safe is to create a prenup or postnup agreement. If you have stated in your prenup or postnup that you will maintain full ownership of your business, then you will keep the business after your divorce.

The details of your unique situation determine whether your small business is safe during a divorce. In the worst-case scenario, you still at least get to keep half of the business’s value, which you could use to have a fresh start after the divorce.

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