What happens to your business if you are getting divorced? What if your spouse owns the business?
The first question to get answered is whether the business is Community Property or Separate Property. Next you would want to know the value of the business, and the type of business.
If the business is Separate Property, then it will likely stay with the owner spouse. This article will focus on what happens when the business is Community Property. At that point, it is not one spouse’s business anymore, even if they have done all the work in the business and/or own the shares.
How to Divide or Buy-Out?
It’s important to know that very few Courts want to leave a business with owners who are divorced. So one of the main problems in a divorce with a business is that one side has to be bought out. Therefore, valuation of the business is key. Valuing a business is very difficult, unless it is traded on the stock market. Fighting over the valuation can take quite a bit of time and effort. Usually each side hires a valuation expert, who typically (magically!) come up with valuations that are different and favor the side that hired them.
Courts faced with valuation issues typically find a valuation somewhere between the two expert opinions. However, if one expert is more convincing than the other, the Court is certainly free to rule for one side or the other.
Sometimes the Court will order the sale of the business, since that may be the only way to get one side or the other to get paid out. Sometimes a Receiver will be appointed.