Is Your Business Community or Separate Property?

Understanding what is likely to happen to a business is one of the most critical and complex issues facing business owners during a divorce. A key first question is whether a business will be considered community or separate property.

The Court’s Decision

Few courts advise awarding joint ownership to parties in a divorce—running a company is challenging enough without the added complication of working with a former spouse. To mitigate the damage divorce may have on a business, one spouse will usually buy out the other’s interest in their company.

To ensure fair compensation, parties must conduct a business valuation. Unless a company is traded on the stock market, precise values can be challenging to determine and assessments may require a great deal of time and effort.

During the valuation process, each side may hire an expert whom they believe will arrive at a conclusion favorable to their position. Courts faced with competing valuations may arrive at a figure somewhere between those proposed by each party or the Court may select the value proposed by one party. In some instances, courts may order parties to sell the business in its entirety, particularly when the composition or size of the community estate does not allow for one spouse to buy the other spouse out of the property.

If you are a business owner and you plan on getting a divorce, hire a competent attorney who has experience handling the divorces of business owners. Don’t let someone else walk away with your hard work.