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How will the court decide business ownership during your divorce?

As a business owner who is facing divorce, you may understandably worry about how your business will fare. Will your business remain whole or will the court split it between you and your spouse?

The first thing to caution is that this is not a time to do anything rash, such as attempting to fudge the numbers or hide assets. The fallout may be extraordinarily damaging for you. Instead, make sure you are keeping family money separate from your business assets, as well as maintaining thorough and accurate accounting records.

The next thing to note is that California is a community property state. As such, the law stipulates that the court must split marital estates in half between the spouses, with certain exceptions. That said, not all property you or your spouse owns will count as marital property. Some of it will be separate property.

Manner and date of business acquisition

When did your ownership begin (before or during your marriage, or through inheritance) and how did you fund the company (using separate or marital property)? These are key components in determining whether and to what extent your business is part of your community property or belongs to you individually.

If you funded your business exclusively from separate property, you may have a better claim that it is separate. However, even then, circumstances where your business provided the majority or sole support for your marital household may bolster your spouse’s claim.

Records of ownership and participation

Other factors include official ownership and level of collaboration. Are you and your spouse joint owners according to the documentation? For example, are both of your names on the company bank accounts? Similarly, has your spouse played a significant role in developing or maintaining the company, such as marketing or overseeing operations?

If you can demonstrate that you are sole owner and supporter of the business while your spouse did not contribute to the furtherance of it, you may again improve your claim that it is separate property. Conversely, if your spouse is a co-owner or has substantially engaged in cultivating the business, your spouse may have a stronger claim.