If My Husband Owns a Business in California, Do I Own It Too?

Divorce can present many complex financial questions. If you are married to a business owner, you may wonder, “If my husband owns a business in California, do I own it, too?” This can be a difficult question to answer, and it is important to understand the property division laws in California for divorce and what they could mean for you.

Divorcing a Business Owner in California

Divorce is known to be financially draining, in addition to the many other stressors involved in the proceedings. When a couple is divorcing and one spouse owns a business, this can add financial complications. The spouse who owns the business may worry that their spouse will take a large portion of the business. The spouse who does not own the business may worry that they will be left with nothing to ensure their financial stability without proceeds or assets from a business. This is particularly true if that spouse gives up educational and career opportunities to benefit the marriage and their spouse’s efforts in the business.

Whether you are entitled to a portion of your spouse’s business largely depends on the categorization of the company as separate or marital property. If you are involved in a divorce where your spouse owns a business, you have to protect your financial interests. By working with an Asset Division Attorney in Orange County, CA, for your divorce, you can protect yourself during separation.

Division of Property Laws in California

The state operates under community property laws. If spouses do not have a marital agreement that dictates the separation of assets and cannot reach an agreement about their assets through mediation, their assets are subject to separation by the court. Under community property laws, all of a couple’s marital assets are split equally between spouses.

Marital or community assets are any assets obtained by either spouse throughout their marriage. Separate assets, or any assets gained prior to their marriage, are not divided between spouses. Marital assets can include income earned by both spouses during their marriage, property the couple bought together or that either spouse bought using marital assets, and debts either spouse acquired during their marriage.

If you have any concerns about whether specific assets or debts qualify as marital or separate, your attorney can evaluate these items and explain what to expect when it comes to property division for your divorce. Generally, each spouse gets to keep their separate assets.

There are some exceptions to these rules. Separate assets can become marital assets by:

1. Being commingled in the same account
2. Purposefully transmuted into shared assets

For example, if you owned a home prior to marriage but during your marriage, your spouse helped make mortgage payments and/or contributed to renovations that increased the property value, it is likely that the home will be considered as having transmuted to community property. The same could apply to a business. If one spouse owned the business before marriage but the other enabled them to keep the business running, it can qualify as marital property.

Additionally, there are some assets obtained during a marriage that are considered separate property. These include:

• Gifts or inheritance given to one spouse
• Property obtained using separate assets

However, even assets obtained with separate finances can be considered community property if the other spouse made financial contributions to it. The court assumes that all assets obtained during a marriage or in shared accounts are marital property unless one spouse has financial documents or other proof that shows otherwise.

It is also possible for spouses to define their respective separate property ownership rights with a prenuptial agreement. While many people carry misconceptions about prenuptial agreements, the reality is that these documents can provide extensive financial security to both spouses, and creating this contract will provide an opportunity to have difficult but important financial discussions prior to beginning their marriage.

Community Property Laws and Businesses

When a spouse creates a business during a marriage, California considers it to be community property. This means that, if you are the spouse who does not own the business, you are legally entitled to half the business. This can make negotiations and litigation contentious for many couples.

There are several ways this equal ownership may be resolved, including:

• Selling the business and splitting profits
• Co-owning the business
• A buy-out with other marital assets
• A competitive income

Each of these options has different implications for both spouses, the business, their taxes, and other forms of financial support. An experienced attorney can be a valuable asset who can review the details of your financial situation and explain your options for resolving property division disputes concerning a business.

If a spouse creates a business prior to the marriage, many people may assume that it is considered separate property. This isn’t always true for businesses. Depending on when and how a business earned its value, it may be considered marital property. The business may be considered marital property if:

• The business’s value has increased over the course of the marriage.
• Its value can be linked to how it was handled throughout the marriage.
• Its value can be linked to contributions from a spouse’s separate assets or from marital assets.

If the business grew during the marriage, the spouse who did not own the business will likely be entitled to part of the business’s profits. However, if the business’s value is largely found prior to a marriage and a spouse did not make significant contributions, the court may determine it to be a separate asset.

How Your Attorney Can Help

Dividing property is just one of several complex issues you will need to address in your divorce proceedings. It is unwise to approach your divorce proceedings in California without legal counsel on your side, especially if business ownership is likely to be a key area of contention in your proceedings. This is just one of several financial issues you will need to resolve, and legal counsel you trust can significantly increase your chances of reaching a positive outcome.

Your divorce attorney in California can provide valuable assistance with the financial disclosure process. In any divorce in California, both spouses must submit a financial disclosure statement that details all of their property, assets, and liabilities. For the purposes of property division under California’s community property law, it is important to understand that divorcing spouses must evenly divide both assets and debts.

It’s possible for debts to be considered marital or separate property just as assets can be classified. Disputes may arise concerning specific debts, and one spouse may not want to be held liable for debts they believe to belong to the other spouse. However, when it comes to business ownership rights in divorce, it is important to recognize that attempting to secure half of the ownership rights would also mean assuming responsibility for half the business’s liability.

FAQs

How Are Assets Divided in California?

Assets in a California divorce are divided by community property laws. Each spouse has equal rights to marital property. Marital assets generally are any assets that a couple gained throughout their marriage. If the division of property is left to the court, the court will split assets equally between spouses, ignoring any factors outside a marriage. Couples can avoid a community property split by negotiating a separation agreement outside of court or creating a marital agreement before or during their marriage.

How Long Do You Have to Be Married to Get Half of Everything in California?

There is no timeframe that a marriage has to last for parties to have equal property Alimony rights. No matter when a couple divorces, each has equal rights to all marital assets. If the court must divide a couple’s property for them, they will do so in an equal 50-50 split. This only splits marital assets, not every asset in a divorce. Both parties will hold onto their separate assets, or assets gained prior to the marriage. The court does not have jurisdiction over separate assets.

Is It Always a 50-50 Division of Property in a Divorce in California?

If the separation of assets is under the court’s jurisdiction, it is always a 50-50 split of marital assets or as close as it can get to that. However, the division of property does not always have to be up to the court. There are two main ways to avoid this:

1. Create a marital agreement. Before or during your marriage, you and your spouse can create a prenuptial or postnuptial agreement that outlines how property is divided. Unless this agreement is incredibly unfair to one spouse, the court will enforce it.
2. Resolve your divorce through mediation or collaboration. If you and your spouse can reach a fair agreement for property division, the court will enforce it.

What Assets Are Protected in a Divorce in California?

Separate assets are not split in a divorce. This includes:

• Assets obtained prior to marriage
• Assets obtained after the date of separation
• Gifts or inheritance provided to one spouse
• Property gained during a marriage with separate assets

Assets can also be protected through other methods, such as through a marital agreement or a trust established before a marriage.

Protect Your Rights to a Spouse’s Business

A divorce involving a business is often significantly more complex, and it requires valuators and other professionals to negotiate an effective separation agreement. For a high-asset or complex divorce, contact Quinn & Dworakowski, LLP. We want to help you protect your financial interests during negotiation or in court.