It’s easy to be optimistic about marriage in the beginning. No one likes to consider divorce when you’re about to exchange vows. But, with more than half of every first marriage ending in divorce, we should be more cautious about the consequences of divorce. This is especially true if you own and operate a business. Many people approaching a divorce will worry that their business could be considered shared property in a divorce. In this article, we explain what is and is not considered shared property, what happens if you don’t have a prenup, and how you can prevent your business from being considered shared property in a divorce.
What is Considered Shared Property in a Divorce in California?
Community property is another way of referring to a shared property. California is a community property state. This means that when a couple divorces in California, the law states that any property accumulated together during the marriage gets divided equally. Determining what is and is not considered the community or shared property in a divorce can be tricky. In some cases, separate property is straightforward.
Any property that you owned before the divorce that’s in your name is considered yours. However, if you owned a home and your ex-spouse helped maintain the home or pay the mortgage, that’s another story. This same concept can apply to businesses. Even if your business is solely listed in your name, your spouse can be entitled to half if he or she contributed to the business over the years. Unless you have a prenuptial agreement stating otherwise, splitting a business up after divorce can be messy.
How a Business Gets Divided
So far, we’ve learned that California is a community property state that divides shared property in the case of a divorce. Without a prenuptial agreement, your business will most likely be on the table when discussing the terms of your divorce. It’s important to know how the courts decide to divide a company. It’s not simply how much the company is worth, it’s how the company got to that figure over the years.
Basically, how did the appreciation occur? A judge will want to know how each spouse has invested in the company or added to the growth of the company. If the company has flourished over the years due to external factors, such as a sudden change in the market, that will also be taken into consideration. It’s important for both parties to be as transparent as possible about their businesses, earnings, and shared property in a divorce. It’s never recommended to hide any details, profits, or funds.
How to Protect Your Business Without a Prenuptial Agreement
You might find yourself in an unfortunate situation of owning a growing business, with no prenuptial agreement, and an impending divorce. While this can be worrisome, it’s not an impossible situation. It’s highly recommended to try to reach an agreement with your ex in order to save your business.
If you want to continue to operate your business without your ex involved, there are a few options. You can offer to payout your ex in a lump sum at the time of the divorce. You could enact a Property Settlement Note, which is when you basically make payments over time to payout your ex. This will eventually add up to the value of his or her share of the business and it includes interest as well. While you can take control back of your company, you may still face a major financial hit.
How to Protect Your Business With a Prenuptial Agreement
If you’re lucky enough to be entering a marriage instead of ending it, you can be proactive about protecting your business. It’s always important to reflect on how you’d like to move forward with your business in the case of a divorce. How do you see your profits being spent? Will you be putting most of your earnings back into the business? Will you be using most of your earnings to support your household? Where do you see the company in five or ten years? What role do you see your spouse serving in this business?
These and other questions should be answered before you enter the marriage. An experienced lawyer can help you set terms and conditions on the ownership of your business. A signed prenuptial agreement is the only way to assure yourself that you and your company is protected in the case of a divorce.
For More Information on Protecting Shared Property in a Divorce
If you’re approaching a divorce, now is the time to contact an experienced divorce lawyer. Your business could be in jeopardy. A divorce lawyer can help you understand your rights. A lawyer can also help you prove that your business has grown under your control. Contact a trusted divorce lawyer today to learn more about your options.