About 90 percent of all businesses in the United States are family-owned, and these businesses play a vital role in their surrounding communities and the overall economy. Family businesses can provide their owners with convenience, flexibility, and lower employment costs, while allowing them to work with the most important people in their life.

Unfortunately, the mixture of business and personal life can make or break a relationship. If one or both spouses decide they want out of their marriage, determining how to divide marital assets that include a family-owned business can be a very complex undertaking. While many small businesses are not prepared for their owners’ divorce, a breakup does not have to mean the end of the company.

Where Does a Business Stand During Divorce?

In the state of California, which is considered a community property state, all marital property must be divided equally between divorcing spouses. In cases where a business is involved in the divorce process, that business is likely among the most valuable of a couple’s assets. However, it also likely the most illiquid asset to be considered, meaning that the business cannot be easily sold or exchanged for cash without losing value. To completely split the assets in a family-owned business, the business itself may need to close its doors, or it may be sold to a third party, and the proceeds can be divided between both spouses.

During divorce, a spouse can take steps to avoid losing their business. One way to keep the business operating is for one spouse to “buy out” the other spouse’s share of the company. This can be done by using the share from other marital assets, such as cash, stock, real estate, and retirement funds. Property settlement notes are also a good way to ensure the security of the business following a divorce, which would include a long-term payout, plus interest, of the amount that one spouse owes the other spouse for the value of his or her share of the business.

Planning Ahead Before Divorce Enters the Picture

The best strategy to avoid complications with a business when spouses divorce is to sign a prenuptial agreement before getting married, or, if the business is founded after the marriage, to sign a postnuptial agreement. This type of agreement can specify how ownership of the business will be handled and how business assets and other marital property will be divided in the case of divorce. A skilled family law attorney can help you create an agreement which will protect your business and your family’s finances if your marriage ever ends.

Contact a San Jose Divorce Lawyer

While divorce can be challenging, it does not have to mean the end of your family-owned business. If you are considering divorce and want to know what strategy you should take to keep your business intact, the attorneys at Dominion Law Group, LLP can help you understand your rights and work with you to reach a satisfactory solution. Contact our Santa Clara County divorce attorneys at 408-288-5592 for a free initial consultation.




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