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Can your spouse try to lay claim to your business in a divorce?

On Behalf of | Feb 15, 2023 | Asset Division

There are certain assets that tend to cost far more than anything else someone owns. Real estate and retirement savings are often far more valuable than vehicles or furniture, for example. Spouses typically acquire significantly valuable property together while they are married.

California treats the income people earn while married and the property that they acquire as community property. As a result, married couples will need to divide the value of those assets, along with their debts, equally in the event of a divorce, unless exceptions to those circumstances apply.

If you own a business or professional practice, chances are good that it is the most valuable asset in your portfolio. The true value of your company may dwarf even your real estate holdings. Will you have to worry about your spouse laying claim to your business’s value in your upcoming divorce?

Some or all of the business could be community property

No two marital estates are identical and every business has unique assets. Determining whether or not your spouse may have a claim to some of your business’s value in a divorce will typically require a careful review of your agreements with one another, your personal finances and the company’s financial records.

Certain factors make it more likely that your spouse will have a legitimate claim to some or half of the company. If you started the business during your marriage and used marital property to do so, then they may have an interest in the company even if they never helped run it. In fact, even if you owned the business prior to marriage, allowing your spouse to perform unpaid work at the company or reinvesting marital income into the business could lead to at least a partial claim on behalf of your spouse.

There are also circumstances that reduce the likelihood of your business being treated as marital property when you divorce. Maybe you had the foresight to negotiate a prenuptial agreement during your engagement or a postnuptial agreement when you acquired or decided to start the business. Perhaps you have very clear financial records showing that you owned the business outright before marriage and have not commingled its resources with marital assets.

You will likely need to look over your contracts and financial records to figure out how vulnerable your business actually is. Protecting the business may require settling. For many people, settling out of court can be the best option when they have very specific goals for their divorce. You could also make keeping the business your top priority in negotiations, which your spouse may happily agree to if you make concessions in other areas.

Evaluating your options can help you make the best choices as a business owner who is contemplating divorce in California. Legal guidance is always available to provide you with clarity and support.