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Rombro & Manley LLP

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What happens to your small business in a divorce?

On Behalf of | Mar 1, 2022 | Divorce

If you have a small business, you have likely invested much time and effort in making that business a successful endeavor. Despite your hard work as a business owner, your marriage may not have been as successful as your business and now you are facing divorce. The following are some issues business owners will face in a divorce.

Who owns the business?

A big issue involves who owns the business. While both spouses may have an ownership interest in the business, if only one spouse technically owns the business it may be possible to sell it before the divorce is complete. However, the non-owner spouse may need to be compensated for their share of the business. Note that if you solely own the business, filing for divorce does not affect your ability to sell the business. What is essential to understand is that your spouse has an interest in the business to the extent that it was founded and run during the course of the marriage and marital assets were either used in furtherance of the business or the business profits were kept and used as marital assets.

What is the business worth?

The business must be valued by a professional appraiser for the purposes of property division in a divorce. There are a variety of ways to value a business including an income-based, market-based or asset-based business evaluation. An appraiser will likely examine many sources of data including tax returns and inventory to determine what the business is worth.

Ultimately, once the business is valued by a professional appraiser it can be included in the estate for property division purposes. California is a community property state, meaning both spouses have an ownership interest in all marital assets and marital property will be divided on a 50/50 basis to the greatest extent possible. Of course, couples are free to negotiate their own divorce terms, including how they will divide marital property. Agreeing on the value of a business makes the property division process as well as the divorce process as a whole run smoother.