Can my spouse take half my business in the divorce?
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Can my spouse take half my business in the divorce?

| Apr 1, 2021 | Divorce

Because California is a community property state, you may be particularly worried about how the property division phase of the divorce will affect your business. If you must divide the assets in half, will you be able to keep it running?

That question does not have an easy answer because so many factors may contribute. However, even if it turns out that your spouse has an interest in the company, you may be able to keep it intact and in your name.

Community and separate property

The California Courts explain that your business belongs to you and your spouse if you opened it during the marriage and the funds you used were marital funds. If you used a gift or inheritance to get your business up and running, then it may be separate property. Keeping separate property separate can be tricky, though. Using marital funds could cause commingling. The portion of the business that gained in value due to the use of marital funds may be marital property.

Alternatives to division

Before you can begin the property division phase, you will need a professional valuation of your business. Once you have that and you know your spouse’s percentage of interest, you can make some decisions.

The American Bar Association suggests that you may want to offer to buy out your spouse. This may require a business loan or sale of liquid assets. Buyouts during divorce are transfers rather than sales, so there would not be heavy tax consequences. Another option is to offer your spouse other marital property such as your part of the equity in the home in exchange for the business interest.

If you feel determined to keep your business alive, you may even want to allow your spouse to own stock or receive a percentage of the profits. This may give you the time to financially recover from the divorce before you take the next step.