Married individuals acquire businesses through a variety of different ways. Some people inherit the family business when a parent dies or retires. Others might start a professional practice once they finish graduate school and pass state licensing tests. Some married couples buy into a franchise together as a way to support their growing family.
Regardless of how California business owners acquire the companies they operate, they usually want to continue owning and running those businesses until they are ready to retire or sell the business to another party. Those plans can come crashing down when one spouse decides to file for divorce. Typically, any amounts invested in the business may be vulnerable to division in the event of a divorce due to community property rules.
How can people fairly address a family business as part of a California divorce?
With a careful business valuation
One of the first steps people need to take if they own a business and plan to divorce is to determine what the business is actually worth. Business valuation looks at factors including the value of business equipment adjusted for depreciation since its acquisition.
Current contracts, financial obligations and likely future profits can all be part of the business valuation process. Different types of companies require different approaches to valuation. Some have physical assets that require assessment. Many others have valuable contracts with clients despite a lack of high-cost equipment or business facilities.
Choosing an appropriate valuation method and establishing a fair market value for a business is an important step when preparing for divorce. Couples then have to determine how much of the business’s value is marital property and how much, if any, of its value is the separate property of one spouse.
With appropriate goals
Sometimes, one spouse largely runs the business on their own because it is a small professional practice. Other times, either spouse could operate a franchise restaurant or oil change business they started together.
Each spouse may spend time considering whether continued involvement in the business is the right goal for their circumstances. Requesting a buyout or seeking continued ownership of the business are both common goals.
In some cases, spouses may sell the businesses so that each spouse can receive proceeds to serve as a nest egg for future investments. For those who may provide unskilled services to a family business, looking for new employment elsewhere can be an important part of this process.
In theory, each spouse has the right to a certain amount of a company’s value based on the use of marital resources to establish and develop the company. People may have to make concessions regarding their current employment arrangements or the division of other property when the marital estate contains a business.
Addressing employment matters and economic concerns related to a business can require significant preparation during a high-asset California divorce. Business owners and their spouses can enjoy less complicated divorces if they come to the table with realistic expectations.