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How Does Divorce Affect Business Ownership?
The majority of people consider their home to be their most valuable asset. But the most valuable asset for entrepreneurs is the business they have built and grown over the years.
For entrepreneurs, the change in business ownership in the event of divorce is an important issue. Entrepreneurs may think they have a right to own the whole business because of their job, but this is not always the case. Depending on the circumstances, your spouse may be entitled to 50 percent of the business in the event of a divorce.
Is your company a community property or a separate property?
The first step in deciding what to do with your business is to determine whether the business is considered community property. In California, community property is divided equally between the married couples. Your ex-spouse may receive a 50% stake in your company under the following circumstances
Specifically, if you and your spouse started a business together, or if the business started while you were married. During marriage, personal interests in the business are not important because the business provides income and responsibilities that benefit both parties. Now that divorce is being considered, the ownership of the business needs to be split and separated.
If the business is considered community property, its net worth must be assessed in divorce proceedings. This will assign a value to each spouse’s share in the liquidation, but it is also possible that one partner will buy the other’s share and take full control of the business. Or, if ex-spouses work together, they can continue to run the business as co-owners of individual shares.
When businesses are treated as separate property
Many people start a business before they get married. If so, the business may be treated as a separate property in the event of a divorce. As separate property, it is not affected by the division of property.
However, because your business assets are mixed with the marital property, the court may decide that your business is closely related to the matrimonial property and should be considered part of it. To avoid this, great care should be taken when determining ownership of real estate and other assets.
If a business is the heir to a family business
Family businesses add some interesting elements to what we’ve talked about so far. First, neither party has the right to inherit from the other, even if it was acquired during the marriage. This means that spouses who inherit their father’s business can treat it as separate property, even if they were married long before inheriting the business.
So if you inherit a family business, it’s important to manage it as a separate property in the event of a divorce. One factor that makes an inherited family business co-owned is that the spouse owns the business and controls its management and operation. In that case, some of the assets of the family business would belong to the spouse.
If you’re worried about losing your business in a divorce, unfortunately, you may be right. If you start a business during marriage, especially a partnership with your spouse, you need to evaluate its value and divide it up as joint assets. In some cases, you can buy your spouse’s share of the partnership, but this requires their consent and can cause you to lose your share of other joint assets.
If the business you own is a separate asset, whether it’s a business you started before you got married or a family business you inherited, it’s important to keep the business separate for the duration of your marriage to protect your interests. There are many ways to do this, one of which is to claim ownership of the company in a prenuptial agreement. Your spouse may argue that your business assets are being consolidated into joint assets, but with an experienced attorney on your side, you can really protect your assets.
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