California Law on Business Interests in a Divorce Case

Under California divorce law, a court must divide the couple’s property equally between the spouses unless they have executed a written agreement on distributing assets. With some types of property, such as real estate or bank accounts, the division is relatively straightforward. However, property division becomes more complicated with other assets, especially when the divorce case involves ownership interests in a business. You should always discuss your situation with an experienced property division and settlement attorney, but some general information on California law is helpful.


Business Interests as Community Property

If the ownership interest in a business is acquired during the marriage, it should be divided equally between the spouses – regardless of how much the individuals are involved with operating the company. Depending on the circumstances, the most logical arrangement is for one spouse to buy-out the other so that the business can continue.

  • Business Valuation: Before getting to the specifics of sale transaction, it’s necessary to conduct a business valuation. The process is highly complex, so a financial professional is typically retained for the task. An expert will likely use a market approach, income method, or other methodology for assessing the value of a company.
  • Company Goodwill: Note that the name, brand, and reputation of the business has value to its owners, and this must be considered when dividing these assets in a divorce.


Options for Divorcing Couples

Once the value of the business is established, divorcing spouses have different options for going forward:

  • In the case where one spouse has primary responsibility of the company, it may be advantageous for him or her to buy the other person out. The business could continue with limited disruptions.
  • Where the company is larger, couples may be able to divide the business up into separate sectors – with each taking control over separate divisions. Again, the advantage is that the operation could continue running.
  • It may be necessary to sell off the entire company where it’s impractical or impossible for the business to continue after divorce. In such a case, the proceeds would be divided equally – subject to the other community property involved in the divorce.


Discuss Your Options with a Property Division Lawyer

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Dividing ownership interests in a business is a far cry from distributing other types of assets in a California divorce, as there are a number of options available and different valuation methods involved. If the business has roots before marriage or is tied to an inheritance or gift, division in divorce is then also subject to complex apportionment formulas. You put your rights at risk if you don’t have an experienced attorney keeping an eye out for your interests, so please contact the Law Office of Charles D. Stark with questions. Our firm represents clients throughout Sonoma County, and we can schedule a consultation for you at our convenient Santa Rosa, CA location.

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