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Will your business be regarded as community property in divorce?

When California couples are the joint owners of a business, a divorce will likely present many challenges. Because California is a community property state, a jointly owned business is typically regarded by the law as community property. However, by being proactive, couples can avoid lengthy and expensive litigation should they decide to divorce.

A jointly owned business will have to be evaluated, and the level of involvement of each party will be considered if the court has to rule on who will get the business. If one spouse, for example, plays only an administrative role while the other spouse is responsible for the running of the company, the court may decide that the spouse handling the support role is not essential to the business. However, if both spouses are professionals who jointly own a business, such as a medical practice, the court may rule that both spouses are entitled to a designated share of the business.

In order to avoid such an important decision being made by a judge, the spouses/business partners may address the issue in a prenuptial agreement. For additional protection of their assets, couples may draw up a business agreement that spells out their wishes for dividing their business assets in the event of a divorce. They may indicate that the business must be sold, and the proceeds shared, or that one spouse will buy the other spouse's share. This may also be done on a basis of exchanging business assets for marital assets in an agreed upon manner.

Each party will need their own legal representative for drafting a prenuptial and business agreement. An experienced California divorce attorney will likely have the necessary resources, such as a financial professional, to provide support a divorcing spouse's business assets. At the same time, a divorce lawyer will attend to community property and separate property in relation to the marriage, along with other family law issues such as child custody, visitation and parenting plans.

Source: CBS Moneywatch, "Who holds onto the family business when couples divorce?", S.Z. Berg, Feb. 10, 2015

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Victoria S. Linder Law Office
5303 Folsom Boulevard
Sacramento, CA 95819

Phone: 916-905-4805
Fax: 916-498-0127
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