During a marriage, your life becomes intertwined with that of your spouse. Possessions often belong equally to both parties, which is a big reason why the division of property becomes such a contentious part of a divorce.
Splitting belongings at the end of a union often gets heated and complex. And this situation is further complicated if you and your spouse were business partners in addition to being life partners.
Can Your Business Be Divided During a Divorce?
In an already intricate situation, a divorce between business partners presents a whole new set of challenges and problems for the people involved. This brings up a number of issues you need to address as you go through the process. It can be a tricky road for sure.
With that in mind, here are some considerations to keep sight of as you go.
Related Reading: Types Of Divorce In California
Your Business Is A Divisible Asset
You poured your blood, sweat, and tears into your business. You dedicated every waking moment of your life to making it a success. And you likely have a deep, profound personal attachment to your enterprise. Whether it’s an accounting firm, a construction company, or you repurpose thrift store clothes to make dog outfits, it means a great deal to you.
Though you have this emotional connection to your business, it is, at the end of the day, an asset. One that can and usually will be broken up and distributed in a divorce. It may have significant personal value to you. But there is also a real-world worth, a dollar amount you need to consider during the division of property.
Related Reading: How are Assets Split in Divorce?
The Origin Of The Business Matters
One factor that has a huge impact on the fate of your business in a divorce is when, where, and how it was founded. If you and your spouse started a company together during your marriage, it may be considered community property in California and treated as such in the divorce.
If not, however, other factors impact its status or at least help determine how much of a business is eligible to be allocated.
If your business predates your marriage, it will, at least in part, likely be viewed as separate property.
A number of components influence this status. The court takes into account the value of the business at the time of your marriage versus at the time of your divorce. It also looks at whether that value increased, decreased, or stayed static.
If community efforts aided in raising the value, this plays a part. For example, if you invested in the company, but those funds came from resources shared with your spouse, that impacts the final settlement.
Similar things occur in other circumstances as well. If a business was passed down from a family member, the court may take into account any community time and property used to benefit the company.
Things get even more complicated if there are other business partners or shareholders to consider. If you started a business with capital from outside investors, that impacts how much qualifies as separate or community property.
Read More: Should I Hire a Divorce Lawyer?
Options For Dividing A Business
When it comes to dividing up a commercial venture between spouses in a divorce, you have a number of ways to proceed.
The most common strategy is for one partner to buy out the other and continue to run the company as usual.
This works best when there is unequal interest in the business and when one spouse is more involved in the day-to-day operations.
Perhaps you and your spouse are business partners in name only and you run the business. If that’s the case, this may be a good way to move forward and may benefit both parties. In some situations, this represents a big shift for the company, and you may want to pause a moment to consider the larger repercussions.
Depending on the circumstances, it may be possible to divide a particular business, with each party running their portion.
For instance, if you and your spouse are accountants, each with your own set of clients. You may be able to split things down those lines.
Related Reading: How Is Debt Divided in Divorce?
Continue Working Together
Though your marriage may be ending, that doesn’t always mean your business partnership has to conclude.
If a split is amicable enough, you may be able to continue with business as usual.
Perhaps the two of you simply didn’t work as a married couple but can continue to coexist in a professional capacity.
This obviously depends on the nature of the divorce and the relationship you maintain in the aftermath. However, in some instances, this is an option, though a risky, potentially thorny one.
If you and your spouse are unable to come to an agreement on how to split up your business, you may have to sell it and divide the proceeds. Though also an option, this comes with its own set of dangers.
Whether or not your company sells, and for how much, depends on many factors. Like what line of business you’re in, the demand, and the competition. Even in the best of circumstances, the odds are not great. Some estimates place the number of small businesses that sell on the open market at approximately 30%.
Related Reading: Divorce Discovery Tools