What You Need to Know About Dividing a Business During Divorce

As part of every divorce, assets and liabilities, such as family-owned businesses, are divided between the two parties through a process called equitable distribution. A court classifies property as either marital or separate, places a value on the property and then distributes it among the spouses. The value used is usually the fair market value as of the date of separation. Before we go any further, let’s talk more about the difference between separate and marital property.

Separate vs. Marital Property

There are several factors that will determine whether your business will be considered separate or marital. If the business was purchased or acquired during the marriage, with joint funds, it will be considered marital property. If the business was owned before the date of marriage, or acquired with separate funds, it may be considered separate property, but there are exceptions.

Just because the business was acquired before marriage does not mean your spouse cannot get a piece of it. For example, let’s say you purchased a record store before your marriage, using all your own money. After marriage, you spouse decides to work for your company and even invests some of their money into it. As a result, your spouse now may be entitled to some of the business, even though it was purchased by you before your marriage.

Valuation

Once it is determined whether or not your spouse is entitled to a portion of your business, how much can they actually get? California is one of nine states that has the community property rule, which splits all marital property down the middle. Once a business is split 50/50 it can be sold to share the profits or owned half and half.

Division of assets, especially when it comes to a business, can be complex. If you’re in the midst of a divorce, please contact our Rancho Cucamonga divorce attorneys at Chung & Ignacio, LLP today.

Call our team at (909) 726-7112 or contact us online.

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