Divorce and the Family Business in San Diego
Going through a divorce is often extremely traumatic for a couple. On top of the emotional stress and difficulties in navigating the end of a marriage, the couple also has to divide all of their belongings. For much of the property, this can be as easy as assigning a numerical value and splitting it in two. But for complicated high-value assets, such as a family business, it’s tough to know exactly how much the asset is worth, and the agreed-upon number will rarely factor in all of the emotional attachments that might be involved.
Businesses are treated just like any other asset in a California divorce. Whether the business is considered community or separate property will help determine how it will be divided. Unless the business was inherited or owned by one spouse prior to the marriage, it will likely be considered community property. The State of California has strict guidelines for how to divide community property during a divorce.
To protect your business, act early rather than waiting until a divorce is pending. Business owners, with the help of an attorney, can help you avoid unexpected problems, such as a former spouse becoming your business partner after divorce facing significant financial losses. When a couple marries, they are hopeful, in love, and usually believe the marriage is destined to last. The truth is that a shocking 52 percent of first marriages and 70 percent of second and third marriages end in divorce. The US Census Bureau reports 34 percent of women and 33 percent of men had been divorced, with people aged 55 to 64 with the highest rate of 43 percent.
After spending years building a profitable business, applying your experience, know-how, and passion to create what is often your most valuable asset, you want the enterprise to continue to flourish throughout the ups and downs of the market – and a divorce.
California is a community property state. In a divorce, every asset will be valued, including your business. While you may have owned the business before your marriage, any increase in value is likely to be seen as marital property, and can be of significant value, particularly for larger companies. When planning for the future of your business, don't assume that it will be considered separate property. Many factors will come into play when valuing a business asset when dividing property in a divorce.
When a couple is in the "honeymoon phase" of a relationship, discussing a prenuptial agreement may be a little unpleasant – but is very necessary. You may have children of a prior marriage that you want to ensure gain the benefits of your estate. A prenuptial agreement can help you ensure the people you love are the beneficiaries of your years of building a business. However, a prenuptial agreement must be crafted by a talented family law attorney. One can assume that in a divorce, the prenup is likely to be challenged, and it must have all right elements in place to withstand a challenge in court:
- In writing – not a verbal agreement.
- Executed by both parties voluntarily, with no pressure applied or coercion.
- All assets must be fully disclosed in the document.
- The prenup must be fair and equitable, and not impose unfair restrictions, such as giving the intended spouse nothing in a divorce – it is unlikely the court will agree.
- The document must be executed by both parties, willingly, with reputable witnesses who can attest that no coercion was involved, and notarized.
The first step, once a divorce is set in motion, is for each spouse to make a careful and accurate assessment of the worth of all community property. In a high-asset divorce, this can be quite difficult, because complicated assets such as businesses don’t just have a simple dollar value - there are "intangible" assets (like goodwill) involved. This is why it’s often necessary to bring in experts who can make an unbiased judgment as to the worth of the property in question.
The experts may asses the property’s value in a number of different ways and the court will need to decide which approach is most applicable. For instance: concern value, fair market value, or investment value are all possible methods for determining what a spouse’s stake in the family business is worth. Knowing the best approach for your particular situation can be difficult and this is why it’s necessary to have a knowledgeable legal team working on your behalf.
During a divorce, it may also be necessary to go through a discovery process to find any hidden assets that one spouse does not want included in the divorce settlement. During the discovery process, you can demand all relevant financial documents and records. Especially when one spouse was solely responsible for running the family business, discovery can be essential to ensuring that a fair settlement can be achieved.
Once a fair value has been placed on the business, it must be divided between the spouses. There are several options, each with its own plusses and minuses.
One option is to sell the business and divide the proceeds. However, it can be difficult to recoup full value through a sale and may leave one or both spouses without employment. By contrast, it’s also possible for the couple to continue owning the business together, though this can obviously be a tough situation and can lead to continued conflict.
The most common solution is to have one spouse buy out the other’s interest. This is why having a fair and accurate assessment of the business’s value is so important. Rather than actually writing a check to buy out your spouse, it’s more likely that if your spouse is to retain the business, you will receive other marital assets of equal value, such as real estate or other property from the divorce.
If you are going through a divorce that involves high-value assets, it is essential that you consult with an experienced San Diego family law attorney who can advocate on your behalf. Mattis Law, A.P.C. has the expertise to navigate the complex process of valuation, negotiation, and litigation involved with high-asset divorces. By leveraging our extensive knowledge of the law, we can help you gain a secure future for you and your family. Call us at (858) 328-4400 today for a free and confidential consultation.