In California, marital assets are community property and in most cases divided equally during a divorce. This can become a problem if you own a business and want to protect it during the process. While there are cases where the best option is to sell the business, there are many others where you might protect these interests and walk away with them mostly or fully intact.
Protection can begin before the marriage
If you have already invested in your business before you get married, you might protect your business interests by signing a prenup agreement that specifies what property will remain individual property even during the marriage. During the marriage, you should be careful not to commingle property by avoiding things like using marital funds to grow the business. You might also consider moving the business into a trust, where you no longer appear as the owner which would prevent the business from being listed as marital property in the case of the divorce.
While selling the business and splitting the proceeds might be an option some owners need to take, there are others, less drastic, that can help you keep your business. These include:
- Exchanging your interests in another major asset, such as the family home, to keep your full business interests
- Buying out your ex-spouse’s share of the business
- Selling part of your interests to other investors in the business, with a buyback clause if possible
- Negotiating a payment plan to your ex-spouse for their share of the assets, so you can keep your business interests intact
Divorce can change the dynamics of a business both financially and emotionally. Protecting your business assets should include taking into consideration not just how divorce will affect your status as the owner but how it might affect the work environment in general.