Divorces Involving Business Ownerships in San Joaquin County CA

Most people are not thinking about business ownership when they get married. Perhaps this is why only about 20% of married couples have a prenuptial agreement in place.

But whether you signed one or not, divorces involving business ownerships in California can be incredibly complex for many reasons. At Bansmer Law, our attorney Erica Bansmer has spent the past 10+ years helping clients successfully navigate this exact scenario.

As a result, we have heard just about every question out there regarding divorces and how they relate to business ownership. That is why we put together this in-depth FAQ. Keep reading for answers to your most pressing questions, and to learn more about protecting your best interests during this time.

How Does California’s Community Property Law Affect Business Ownership in a Divorce?

A few examples of how California’s community property law affects business ownership in a divorce are:

• You need the judge’s approval, even if you are both in agreement on the divorce terms. Ultimately, what you and your spouse agree on may not come to pass. The judge can, for example, order a change to the terms of your buyout or even order the sale of the business.
• Anything you owed or owned before the marriage is yours… unless you signed paperwork. If you established the business long before your marriage, you might think it is yours free and clear. But if you did things like put your spouse’s name on ownership documents or any contracts the business has? Then odds are good you will have to split the business in some way with your spouse.
• Community property is anything accrued before your date of separation. California defines your ‘date of separation’ as the day one of you told the other (via words or actions) that they wanted to end the marriage. If you have been thinking about a divorce for years, but only mentioned or demonstrated this very recently, your spouse may be entitled to more of the business than you expect.
• Court-ordered sales and buyouts are possible. In certain cases, a judge will decide whether the best path forward is a buyout of one party or selling the entire business and dividing the profit.
• Post-divorce operations must be clearly laid out. If you and your spouse will both have a role in the business post-divorce, the judge will ask for a clear agreement that touches on profits, decision-making, and management. Basically, you may need to collaborate with your ex regularly in order to keep running the business.

What Methods Are Commonly Used for Business Valuation in the Context of Divorce?

Several methods commonly used for business valuation in the context of divorce include looking at the fair market value, investment value, and asset value. This means the business’s current profitability, its potential ROI for investors, and its tangible and intangible assets.

But usually, the last thing you should do is sit down with your spouse to hash these numbers out one-on-one. Trying to do it this way often makes things even more complicated and contentious.

It is generally best to work with another professional in addition to a divorce attorney in San Joaquin County California, such as a forensic accountant. You see, divorces involving business ownerships in California can quickly descend into what-ifs and theorizing. And you never want to build a divorce settlement on theories.

A forensic accountant’s only goal is to offer a crystal-clear, 100% accurate picture of both you and your spouse’s financial standing. They are educated, trained, and licensed to make sure things like property division and spousal support align with each party’s actual financial capabilities. The court may even hire these types of experts as part of the proceedings.

As a highly experienced California divorce lawyer, our attorney Erica Bansmer is happy to collaborate with your forensic accountant while protecting your best interests.

Can One Spouse Buy Out the Other’s Interest in the Business?

Yes, with divorces involving business ownerships in California, it is theoretically possible for one spouse to buy out the other’s interest in the business. But this dollar amount is likely higher than the one you have in your head.

You see, you will not just be paying your spouse half of the business valuation. They will no longer have access to the future earnings of the business, and that can be factored into the buyout amount. Lastly, the business’s debts and liabilities have to be considered too.

There are many ways this can shake out in the end. For example, one spouse might offer a portion of their marital property in exchange for full ownership of the business. Working with a skilled, experienced California divorce attorney like Erica Bansmer is the easiest way to understand your options and the best path forward.

How Does the Business’s Revenue Affect Spousal Support Calculations?

The business’s revenue directly affects spousal support calculations because the court considers the income of the paying spouse, the established standard of living, the lower-income spouse’s attributed earning capacity, and business expenses all factor into these calculations.

And the business’s revenue has an immediate impact on every single one of these factors.

The primary determining factor is the income of the paying spouse. So, if that spouse is the business owner and/or brings in a substantial income from the business, the business’s revenue can quickly become the most important number.

Next, odds are that if your business generated a high revenue during the marriage, you and your spouse enjoyed the fruits of your labor. The court will consider just how lavish your lifestyle was when determining the spousal support amount, allowing the supported spouse to maintain a similar standard of living.

Third, it is not unheard of for one spouse to wind down business activities in order to make their earning ability seem less than it is. When the court catches this happening, they will look at what that spouse could reasonably earn from the business’s revenue.

Finally, business expenses can also impact spousal support calculations, though a bit more indirectly. The court will take a close look at business expenses to ensure no one is, for example, running personal expenses through the business to mask its profitability.

How Are Business Debts Divided in a Divorce?

When it comes to divorces involving business ownerships in California, business debts (like business assets) can be divided in one of two ways:

• Both parties come to an amicable agreement after considering things like whether both of you started and/or contributed to the business
• You let a judge make the final decision on how everything is divvied up

It is important to remember here that California, as mentioned above, is a community property state. This means that generally speaking, even when it comes to business debts, any debt incurred during the marriage is to be shared between you.

If you leave this decision up to a judge, there is a real possibility they will split the business debts 50/50 between you and your ex.

What Happens if the Business Faces Losses or Bankruptcy After the Divorce?

If the business faces losses or bankruptcy after the divorce, this could impact both of you in several ways:

• Support and alimony – If one of you is ordered to pay alimony or spousal support, these financial difficulties can lead to a modification of the support order.
• Valuation changes – If the business continues operating, you may both need to hire independent financial experts to re-assess the valuation.
• Selling the business – Depending on the timeline for these losses, the court can order that the business be sold. The proceeds will then be divided according to your divorce settlement.
• Bankruptcy – A business filing for bankruptcy can add deep complications to a divorce in California. Your support agreement and the division of property/debts can shift radically as a result.

Speak with an Experienced, Responsive California Divorce Attorney to Get Custom-Tailored Support

While we hear these questions often at Bansmer Law, the truth is that every divorce is completely unique. The information above will hopefully put some of your deeper worries to rest, but you still must navigate the actual divorce proceedings.

With more than a decade of experience helping our clients win favorable outcomes in divorces involving business ownerships in California, we’re here to guide you every step of the way—while ensuring your best interests are always protected.

If you are ready to learn more about how we can help, call Bansmer Law at (209) 474-2400.