Dividing a Business in Divorce—What California Couples Need to Know

For many California couples, a shared business isn’t just an asset. It’s a primary source of income that provides long-term security, a sense of fulfillment, and something to pass down to their heirs. But when a couple decides to divorce, a shared business can become a hotly contested issue that requires help from divorce attorneys on both sides.

When you choose the Law Office of Taylor B. Warner, APLC, you can count on having a fierce and proven advocate throughout your entire divorce. Attorney Taylor B. Warner is a California Bar Certified Family Law Specialist, highlighting her commitment to the practice of family law and her goal of supporting families throughout life’s difficult transitions. Find out how our family law firm in Rancho Cucamonga can help you by calling us at 909-466-5575.

Is a Business Separate or Community Property?

A big part of the division of assets is determining whether certain assets are separate or community property. If something is considered separate property, it is typically not subject to division, but if it’s community property, it will be divided.

If the business was started during the marriage, it is generally treated as community property and will be divided as such. But even if the business was started prior to the marriage, it may still be considered partially separate property. For example, if one spouse owned the business prior to the marriage and then brought their spouse on board to contribute time, effort, and resources, any growth in the business during that time may be subject to division.

Even if one spouse did not technically contribute to the running of the business, they may be owed some of the business’s increased value if their work at home allowed the other partner to invest more into the business. Your divorce lawyer can help you determine the status of your business and how it may be divided.

How Businesses Are Valued in a California Divorce

A business must be fairly valued before it can be divided. Valuation can be done in several different ways–for example, you may look at the company’s market capitalization, use the times revenue method, or use the earnings multiplier method. The right approach depends on the age, industry, and growth trajectory of your business.

Businesses can be an incredibly complex asset in a divorce, which is why it’s important to turn to experts when it comes to securing a fair valuation.

Options for Dividing a Business

There’s no one-size-fits-all way to divide a business in California, but spouses tend to consider several different options when trying to find the right one for their divorce:

• One spouse buys out the other: If one spouse wants to keep the business and the other just wants their share of it financially, the spouse who keeps the business may buy them out with cash, structured payments, or other assets.
• Co-ownership: This is a fairly rare outcome, as co-owning a business with your ex-spouse requires a high level of cooperation and communication that isn’t always ideal after divorce.
• Selling the business: In some cases, the spouses decide to sell the business and split the proceeds instead of continuing to operate the business. This offers a clean break but may not be ideal if one or both parties rely on it as a primary source of income.
• Offsetting the split: Instead of splitting the business, the spouse who keeps it may buy out the other party by giving them a greater share of the marital assets during the divorce.

Hidden Income, Cash Flow, and Financial Transparency

Business ownership provides opportunities for financial manipulation, so it’s important to discuss any decisions you make with your divorce attorney. If one spouse primarily controls the business, they may have the ability to underreport income, delay revenue or contracts to intentionally undervalue the business, or blend business and personal expenses. All of these can lead to an unfair valuation that results in an unjust division of assets. A full financial disclosure is required in California, and if you suspect any attempts to manipulate the business’s income or value, it’s important to consult a forensic accountant.

Protect Your Best Interests With Our California Divorce Law Firm

When you work with a divorce attorney, you can feel confident that you are advocating for your rights and financial needs as you navigate divorce. Let’s talk about what comes next—just call us at 909-466-5575 or get in touch online.

Taylor Warner

Taylor has always been an advocate. Growing up the middle child with an older and a younger brother, Taylor developed a strong voice and personality and has always felt strongly about helping others. Becoming a lawyer seemed to fit Taylor’s personality and character – she is a strong leader and a bold advocate. Learn more here.