You’ve worked hard to build your business, but in a divorce, you could lose that business if you’re not prepared. Talk with the divorce lawyer in San Mateo as soon as possible to find out what strategies are going to work best in your situation as you go through a divorce here in California.
Protecting Your California Business In a Divorce
To start, it’s important to understand that California is what’s known as a “community property” state, which means that the divorce courts will generally assume that both spouses are entitled to half of all assets and liabilities taken on during the marriage.
For the most part, any assets or liabilities that one of the spouses had before the marriage, or which they have received as an inheritance or a gift specifically made to them alone, remain separate property. However, there are lots of exceptions to both these generalities, and it’s easy for separate property to become mingled with community property during the course of the average marriage.
The Business Difficulty
With businesses, it can be especially difficult to decide whether assets are community or separate property. If a business was started and operated by the spouses together, even if that started before the marriage, this is unequivocally community property. If one of the businesses was begun or wholly owned entirely by one spouse, and that one spouse managed it during the marriage with no involvement at all by the other spouse, this will usually be considered separate property: unless it can be shown that the uninvolved spouse made important intangible contributions which allowed the owner spouse to improve their business in some way.
Things get particularly complicated when a business is bought or started by one partner before a couple get married, but then it grows during the marriage to become more valuable. Even if only one spouse was really working at the business full-time, it’s typically the case that the other spouse contributed in some way to the success of the business.
Steps to Take
Move Quickly
It can’t be stressed too much how important it is to move quickly to protect your business. Call a lawyer immediately and get started right away on the evaluation process. If possible, you may be able to put a postnuptial agreement in place, and your lawyer can help you to speak to your spouse and their lawyer in a fruitful and constructive way about this.
Bear in mind that whatever else is happening in the divorce can affect your business if you leave your spouse feeling hurt or angry. If they have a genuine interest in the business, they may even go so far as to harm the business on purpose in order to “punish” you.
Contact a Divorce Lawyer in San Mateo
The first step you should take is to talk with a divorce attorney who has experience in dealing with divorces that involve businesses, who knows California law, and who is familiar with the local court system. A divorce lawyer will be able to give you the most specific and detailed advice for your situation. A lawyer may also be able to help you in negotiations with a spouse that could allow you to keep your business, even if it is community property.
Get a Proper, Third-Party Valuation
It’s not possible to protect your business assets if you’re not completely sure what everything is worth. You need to talk to a third-party evaluator and have them look at the entirety of the business to give you a final number. Your divorce lawyer will be able to point you in the direction of a skilled evaluator who can do this.
There are a couple of reasons you want to third-party evaluator here. First, the court is going to be more amenable to your agreements and proposals when you can show that you have an objective evaluation of the business. Second, this sort of evaluation is simply very complicated and difficult for a non-experts to do well. All the liquid and non-liquid assets of the business must be considered, so not just a building and the bank accounts, but also intangible assets, such as brand value and intellectual property rights.
A business evaluator can also help you in making a good estimate of the contributions of each spouse to a business if both were involved, and particularly if one spouse’s involvement was primarily intangible. Finally, a third-party evaluator will be able to give you some good numbers about how the businesses value has changed over time.
Be Totally Up Front
At all points, you must be completely frank and open about all assets related to the business. Any attempt to hide assets or minimize their value to get a better divorce settlement may be considered fraud and is not only likely to be discovered by your spouse and their lawyers, but will also put you in a very bad position for the divorce settlement. It might also mean that you have to pay a lot more to bring in forensic accountants and other experts; it can greatly extend the timeframe of your divorce; and, in a worst-case scenario, can even get you in tax or other legal trouble.
Approach Your Spouse Constructively
If you’re serious about protecting your business, intellectual property, employees, and more, you should determine to go into negotiations with your spouse with a willingness to compromise and to give in other areas of the divorce. If you do this well and are constructive in your conversations (which is something your lawyer can help you with particularly), you may be able to get your spouse to agree to sign a non-disclosure agreement that can protect intellectual property, a non-competitive agreement so they don’t try to start their own business in competition with you, and agreements to keep certain things off social media or otherwise out of the public eye during the divorce and afterward.
Offer to Buy Out Your Spouse
This may be expensive, but it’s also a very simple and clean way to ensure that the entire business remains in your hands and is protected during divorce. In most cases, you would simply offer to buy the 50% interest that the other spouse would have because the business is community property. You would only want to do this after seeking legal device and getting a third-party evaluation, however, because you don’t want to buy out something that the court may not see as community property at all or pay too high a price for it.
Contract for Co-Ownership
Another possibility is to approach your spouse with the idea of having co-ownership. It’s possible for many couples to continue having a good business relationship even though the personal romantic relationship is over. In this case, the best thing to do is to lay down the terms of the business relationship clearly and get a contract in place quickly. Remember, too, that being a co-owner doesn’t necessarily mean that either you or your spouse has to make decisions or even work at the business. It could be that one of you simply receives a percentage of the profits as a “silent partner” of sorts.
For help protecting your business, contact us at Seeley Family Law for help throughout the Bay Area.