As a same-sex spouse in California, you are subject to the same divorce laws as opposite-sex spouses. This includes the laws governing division of assets and debts, and these laws treat business interests similarly to other tangible and intangible assets owned by one or both spouses.
Unfortunately, as a business owner in California, or as the gay or lesbian spouse of a business owner in California, this does not get you very far. California’s community property laws are complicated in their own right, and the complexities pile on when you introduce a privately-held business into the divorce process.
That said, if you or your spouse owns a business, this business is likely to be one of the most important assets involved in your divorce. As a result, it is well worth taking the time to learn about some key considerations and options you may have available.
Key Considerations and Options for Distributing a Divorce in a Same-Sex Divorce
For purposes of this article, we will assume that the business is yours. But, if your spouse owns and operates a business, or if you own a business jointly, the following points will be relevant as well:
1. Separate vs. Community Property
When did you start or acquire the business? If you started or acquired the business before you got married, the default rule is that the business would be your “separate property,” and, as such, would not be subject to distribution. On the other hand, if you started your business after you tied the knot, then the business is likely to be considered “community property” regardless of what the company’s ownership documents say.
But, while these are the general rules, there are a number of exceptions. One clear exception is the existence of a prenuptial agreement. If you signed a prenuptial agreement stating that your pre-existing business should be treated as community property (or that any business you start during the marriage will be deemed your separate property), then the terms of your agreement will control over the default rules.
Another exception exists where both spouses contribute – either financially or operationally – to a business owned by one spouse prior to the marriage. In this type of scenario, the joint contributions may be sufficient to transform all or a portion of the business into community property.
2. Business Valuation vs. Valuation of Other Property
If your business qualifies as community property, a key early step in your divorce will be to obtain a business valuation. If your divorce is on the table, you need to know what it is worth so that you can make informed decisions about the most-advantageous approach to dividing your community estate. For many business owners, the ideal scenario is to have a large enough community estate so that they can retain exclusive ownership and control in exchange for giving up rights to other assets (perhaps a second home or investment account). But, if your business represents the majority of the value of your community estate, you will need to evaluate the other options you have available.
3. Retention vs. Sale of the Business
In some cases, divorcing spouses may be forced to choose between retaining or selling their business. In this scenario, it is important to carefully weigh all of the options that are on the table. Are you willing to sell (and, if so, can you find a buyer)? Is it feasible to continue joint ownership or operation of the business after your divorce? These are not easy questions to answer; and, before you make a decision, you should discuss all of your options with an experienced attorney.
Learn about more key considerations in our free e-book: Protecting Your Business in a California Divorce (use the download link in the right sidebar).
Request a Consultation with North County Divorce Attorney Richard M. Renkin
Do you have questions about the role that a privately-held business will play in your divorce? If so, we encourage you to contact us for a confidential initial divorce consultation. Call (888) 837-3564 to request an appointment, or send us your contact information and we will be in touch shortly.