Because California is what is known as a Community Property/Equitable Division State, it sees both partners as equal in their claim to all property that was acquired during the marriage. Unlike Equitable-Distribution States, factors such as earning power, involvement in building a business, or length of marriage are not as much considered when dividing marital assets. Here are some things to think about if you’re heading into a divorce and worried about your business:
Did You Plan Ahead?
Much of what you can do to protect your business during a divorce would hopefully have been done prior to marriage, such as a Prenuptial (prenup) agreement and being mindful of the way you conduct your business during the partnership.
If you were forethinking enough to have a well-drafted prenuptial agreement (prenup), it can override California’s state laws to protect your assets, including your business. However, there are a lot of conditions that must be met for a prenup to be considered valid:
• It must have been fully executed voluntarily by both partners, preferably with a witness such as a notary
• There must be full disclosure of all pre-marital assets and debts
• It must be in writing
• It must be signed no less than Seven (7) days after the final draft is presented to both parties
• If either party is waiving the right to spousal support (alimony), both parties must have legal counsel
• It must be conscionable and reasonable
The final point is one that makes prenups particularly tricky—it is quite common for an argument to be made that there has been such radical change since the agreement was made that the partner could not have foreseen it at the time. This could involve how you handled your business during the partnership—for example, if you built value into the business during the marriage, invested marital funds, or mingled your martial property with your business, you might have your prenup challenged. If you treated your business as separate property or acted as a passive owner, you may be a bit more protected from having it considered a marriage asset to be divided.
Did You Conduct Yourself Professionally?
Just because your marriage hasn’t worked out, doesn’t mean that you can’t conduct business with your ex-partner professionally. Resist the urge to make major changes to your business before the matter is decided in court; this can raise red flags and cause more grounds for argument with your ex-spouse. They may have no interest in your company and be more than willing to settle for other assets in return for waiving their right to the business. Do your best to be transparent about your assets and show an authentic concern for your ex’s well-being, and your chances of getting a considerate response are much better.
Did You Get A Valuation On Your Business?
Every business is incredibly unique and should be evaluated by an attorney who is qualified in high-asset divorce. It’s possible that your business may not have intrinsic value in the eyes of the court and not be regarded as martial property—and it’s also possible that it will be treated like any other asset in your marriage. Businesses involve many intangible factors such as mortgages, leases, and trademarks that need to be taken into careful consideration.
It is understandable if you are worried about what your divorce decree will include with respect to assets. Your future financial status may be greatly affected by the outcome of your negotiations, mediation or litigation. To protect your interests and increase the efficiency of your divorce, talk to a lawyer sooner rather than later. Ricklin & Associates in Westlake Village is here to guide you through this process and answer your questions every step of the way.
Ricklin & Associates
2625 Townsgate Road
Westlake Village, CA 91361