A divorce can change your life, family and future in many ways – especially as a business owner. Three main options are available if you and your soon-to-be-ex spouse are business co-owners. Navigating California’s divorce laws and deciding the best way to handle your family business during a split may require help from an attorney in Orange County who specializes in asset protection.
Continuing Co-Ownership
If you and your spouse divorced on good terms and can maintain a professional relationship built on mutual trust and respect, continuing co-ownership of a jointly owned business could be an option. You must prioritize open and honest communication with one another and be prepared to handle potential issues that come your way in a mature manner.
Should you choose to remain co-owners after your divorce, it’s crucial to have the right legal documents in place. Establishing rules and boundaries in writing can prevent you or your ex from having to make decisions based on emotion. Draft a detailed co-ownership agreement as part of your divorce settlement.
This document should clearly define the terms of business co-ownership, establish management roles and each party’s responsibilities to the company, list dispute resolution methods, explain financial obligations, and plan for what will happen if either partner wants to leave the business in the future.
Buying Out the Other Spouse
If one of you is more interested in continuing the family business than the other, or if you both don’t want to see the business get sold but can’t get along well enough to continue owning it together, a buyout is an effective solution. One spouse will buy the other’s share, legally granting full ownership to the purchasing party.
A partner buyout is a good option if only one of you actively manages the business, or if the success of the business relies on the skill, qualifications or knowledge that just one spouse has. It can provide a clean financial break between you and your spouse without having to give up the business.
With the buyout route, the spouse who wishes to secure full ownership will need to come up with the capital to pay for the other partner’s share outright, agree on a payment plan or organize a trade during divorce proceedings. The prospective owner can trade the family home for the family business, for example, if the other spouse is agreeable to this exchange.
Selling the Company
If you cannot agree to a buyout or co-ownership, the business can be sold outright in a joint sale by both parties. You will need to find a third party that is interested in purchasing the business. Once it sells, you and your ex-spouse will split the proceeds 50/50 based on the rules of California’s community property law.
This is a simple and fair way to deal with a jointly owned business in a divorce case, but it can take an emotional toll depending on your attachment to the company. It may also result in selling the business for less than it’s worth if you need to sell quickly. You can use a sale as a last resort if the other two options aren’t feasible for you.
Which Option Is Right for You?
All three of these options have various pros and cons that must be carefully considered before you make your choice. Your situation is unique and should be handled according to your specific needs, goals, family and financial situation. Discuss your case with a qualified divorce lawyer in Orange County to determine the business ownership arrangement that works best for you.
