Business Ownership And Divorce

If you are a business owner and are going through a divorce, there are several questions you may have about what will happen to your business during the divorce process. All of the answers that follow assume that the business is privately owned either by a single person, or jointly between both spouses.
 

Who Owns The Business?

In a divorce, a business is typically considered property, just like a house. The type of business doesn’t matter–restaurant, dental practice, website, etc–they’re all considered property and thus potentially subject to the normal division of assets in a divorce.

Determining who owns the business is the same as determining the ownership of any other type of property: If it was bought/created/funded by one spouse before the marriage, then that spouse owns the business outright.

If however, because of California’s community property laws, the business was started during the marriage using family funds, then the law views the business as being jointly owned and thus subject to a division of assets.

Broadly speaking, there are three common ways to resolve the question of determining what happens to the business during a divorce: Co-ownership, sell and divide, and buyout.
 

Co-Ownership

Co-ownership is exactly what it sounds like, both spouses retain part ownership of the business. It’s important to note that the law in this case does not require both spouses to jointly run the business, and in most cases it’s not a good idea anyway.

The downside of co-ownership is that changes, expansion, or selling the business requires agreement between both parties, so even if only one person is actually operating the business, they still have to make decisions with their ex-spouse.
 

Sell And Divide

Selling the business and dividing the profits is a very common way to settle the issue of business ownership and divorce.

This allows for a clean break, both physically and financially for both spouses. The only downside to this option is that agreeing on a valuation and finding a buyer can both take time and be potentially contentious issues.
 

Buyout

If financially possible, a buyout allows one spouse to buy the other spouse’s share of the business from them. This allows the spouse who wants to keep the business to have total ownership, while also providing a fair value to their ex-spouse and allowing them to exit the business cleanly.

The challenge in this scenario, again, is determining a fair value for the business in total. Most couples look for an independent business appraiser to provide a valuation.
 

When Do You Need A Lawyer?

Unless both spouses are in complete agreement about the terms of handling the business up front, both parties will likely want to seek legal counsel to help navigate both the divorce in general and the business issues specifically.

Because businesses are considered property, any reputable divorce and family law attorney will be familiar with the details and requirements of handling business ownership issues during the divorce process.