Divorce for Business Owners

For many of us, divorce can be an intensely emotional and complicated process. But when two people decide to get divorced, and one or both of them are business owners, it can make things exceptionally complicated. You would need to file the necessary paperwork within the required deadlines. You would also have to go through mountains of documentation to prove the extent of your business ownership in order to mitigate your losses and keep your business running as smoothly as possible during the divorce process.

Divorce for business owners can feel like a nightmare, but with the help of an Orange County divorce lawyer, the level of hassle you would personally need to deal with can be very small compared to doing it alone. If you are looking for divorce representation or advice, especially if you are self-employed and own your own business or businesses, contact Pinkham & Associates immediately for a free consultation.

Do I Need a Business Divorce Attorney?

While you aren’t legally required to have a divorce attorney, that doesn’t mean that you should go without a divorce attorney. Regardless of how long you’ve been married, or any other specific circumstances related to your case, business owners stand to lose a lot if their divorce settlement doesn’t go their way. Hiring an Orange County divorce lawyer may seem like an unnecessary expense right now, but hiring effective legal assistance is almost always worth the cost to most business owners, especially when trying the alternative may even result in a complete loss of ownership of a retirement account, real property or even a business. When shared business interests are involved, handling grey divorces with shared business interests requires specialized expertise.

How Do California Divorce Proceedings Work?

The specific circumstances and details surrounding your specific marriage and divorce (including business ownership) can alter the results of the divorce significantly. Here is the general process you can expect for divorce in California:

Start Divorce Proceedings

Initiating divorce proceedings in California involves several steps. First, you (or your lawyer) need to file a Petition for Dissolution of Marriage. This petition officially starts the legal process and must be served to your spouse along with a summons and several other documents.

If you don’t have a lawyer for this process, it’s a good idea to start researching and schedule a consultation with an attorney who handles divorce cases involving business owners. During your consultation, you should discuss their experience, their approach, fees, and how they would manage the division of complex assets like your business. The right lawyer will be able to guide you through the process and help you understand how best to prepare for your case.

Share Financials with Your Spouse

Just like anyone else going through a divorce, business owners must share comprehensive financial records during divorce proceedings in California. This helps ensure that both parties have a clear understanding of the marital estate, assets and debts, even separate property assets and debts, and can often help separate the facts regarding ownership from the high level of tension that can arise from the divorce settlement process. The best way to do this is by working closely with your attorney to gather relevant documentation, including bank statements, invoices, tax returns, business valuations, financial statements, and other evidence of assets. Properly organized records can prevent delays and disputes over financial transparency and discrepancies in the divorce process, making the entire process faster, smoother and more affordable. If child custody disputes are part of your divorce, our child custody attorney can assist.

How Are You Going to Split Your Assets

The division of assets in Orange County divorces, especially involving businesses, can be complex due to the state’s community property laws. If the parties cannot agree on how to split their shared assets, a trial may become necessary to resolve disputes.

During a trial, a judge will evaluate various factors, including the value of the business, ownership before and during the marriage, its growth during the marriage, and each spouse’s involvement and contribution to the business during the marriage. Understanding how gifts impact custody arrangements is essential; consult a child custody attorney for guidance.

Finalize Your Divorce

Once property division has been negotiated or determined through trial, the divorce must be finalized via a judgment of dissolution obtained from a judge. This judgment will also address all other relevant matters in your divorce, such as child custody and child support, if you have children, division of retirement accounts, distribution of real property, spousal support and business restructuring and division.

How to Protect Your Business

Protecting your business during divorce proceedings starts with proactive planning, ideally before the divorce process begins. Pre-nuptial and post-nuptial agreements are very helpful tools for both parties to establish ownership rights and prevent significant losses.

Pre-Nuptial Agreements

A pre-nuptial agreement is a contract made before marriage that potentially outlines asset division upon a possible divorce, should the marriage end. For business owners, a well-drafted prenup can specify the value and specific ownership of the business at the time of marriage and specify that any appreciation of the business will remain one party’s separate property.

Post-Nuptial Agreements

A post-nuptial agreement is created after the date of marriage and can be valuable if a business grows significantly during the marriage or if circumstances change. These agreements are used to clarify or update asset division terms to protect business assets amid potential divorce proceedings. Circumstances that might prompt a post-nuptial agreement include the expansion of business interests, changes in ownership structure, or shifts in family financial planning.

How Does a Court Divide Assets in a Divorce When You Are a Business Owner?

The goal with California divorces is to follow community property laws, meaning marital assets are likely to be equally divided. For business owners, this means that the portion of the business considered marital property could be subject to equal division. The court evaluates factors such as when the business was established, its value, and the contributions made by both spouses. Further, expert appraisals and financial records may be used in determining how the business assets are split.

Is My Soon-to-Be Ex Entitled to Half of My Business?

Your future ex may be entitled to a portion of your business if it is classified as community property, which generally speaking, a business that was started and built during the marriage. But your spouse may be entitled to some of the business, or some of the value of the business if the business grew during the marriage from community efforts during the marriage. “Community effort” is a very important term in California. Community effort is the work one or both parties to a marriage put into the business during the marriage, such as personal labor. However, if the business was started owned by one party or the other before marriage, typically only the growth or appreciation of its value during the marriage may be subject to division. The exact entitlement depends on various factors, including “community efforts,” financial and non-financial contributions from the non-business-owning spouse, and other factors.

What Do You Do if You and Your Ex Both Own Half the Business?

If both spouses share ownership of the business, options for resolution or division are just like any other community asset. Options for resolution include one spouse buying out the other’s interest, continuing to co-own and co-operate the business post-divorce, or selling the business and splitting the proceeds. The chosen path depends on the relationship between the ex-spouses, financial feasibility, and the viability of co-management. Working closely with a California divorce lawyer is crucial to navigating this complex situation effectively.

One crucial warning: It is not uncommon in a divorce process for one party to allow the business to diminish, deteriorate or even fail intentionally. Their thought process is that they will just turn around and re-start another business that does the same thing as the family business, but because the new business is started after separation, that such new business will be the separate property of the party who starts the new business. Do not do this. Keep in mind that during the divorce process, you have very serious fiduciary duties to your spouse. you are not allowed to intentionally disrupt or harm a family business or allow it to be reduced in value internationally. If a judge suspects this has occurred, that violating spouse can be held liable for the loss of value of the previous business and other very serious and valuable financial sanctions.

What Happens if You Decide to Open a Business Before Your Divorce Settles?

Starting a business before your divorce is finalized can complicate proceedings. The new business may be considered part of the marital estate if it was funded or developed using shared resources or in the course of the marriage. In other words, any income or growth from the new venture might be subject to community property division.

Divorce for Business Owners: Finding the Right Attorney

There are hundreds of divorce attorneys in California, but finding the right one for your specific needs can feel like a full-time job.

When seeking a divorce lawyer as a business owner, you’ll want to prioritize finding someone with experience in complex asset divisions, particularly involving business interests. While success cannot guarantee a future outcome, your California divorce law firm should have a proven track record of success in handling divorce cases for business owners. They should also have strong negotiation skills and familiarity with business valuation experts to help you figure out an accurate assessment of your total net worth.

Divorce For Business Owners: FAQs

What Is Considered a High Net Worth Divorce?

Typically, high net worth divorce cases involve the division of significant assets, typically valued at $1 million or more. These cases often include complex financial portfolios such as business interests, investment properties, stock options, and retirement accounts. An executive divorce is a type of high-net-worth divorce that pertains to individuals holding high-ranking positions, such as business executives or corporate leaders.

Why Is a High Net Worth Divorce Different from a Regular Divorce?

A high net worth divorce differs from a regular divorce in terms of the complexity and value of the assets involved. These cases often require thorough financial analysis to accurately assess the division of diverse and significant assets such as businesses, real estate holdings, investment portfolios, and offshore accounts.

High net worth divorces may also involve executive compensation structures, including stock options, deferred payments, and substantial bonuses, which demand legal and financial strategies. Additionally, the stakes are higher in terms of potential tax implications, prenuptial or post-nuptial agreements, and the need for asset protection. Given these factors, high-net-worth divorces typically require a team of professionals, including forensic accountants, appraisers, and experienced divorce lawyers.

Are You a Business Owner Going Through a Divorce? Pinkham & Associates Can Help

Divorce for business owners is never easy, but with the right lawyer, the difficult tasks associated with filing for divorce can be minimized. A skilled divorce attorney can significantly increase the likelihood of retaining your business and assets during divorce proceedings.

At Pinkham & Associates, we offer free consultations to business owners seeking divorce in Orange County. With over 25 years of experience serving the people of Southern California, we are well-equipped to handle complex divorce cases. To learn more, schedule a consultation with us today.