Divorce & Family Businesses
When marriage ends, dividing assets isn’t just about who gets what—it’s about protecting years of hard work, investments, and planning. For couples with significant or complex assets, divorce in California brings a new level of challenge. The state’s community-property laws often mean that income and property gained during marriage are considered shared, no matter who earned or built them. Without a clear separation between marital and individual assets, everything from businesses to trusts to unvested stock can become part of the equation. Understanding how California law handles high-asset property division is key to protecting your financial future.
Divorce & Family Businesses
When marriage ends, dividing assets isn’t just about who gets what—it’s about protecting years of hard work, investments, and planning. For couples with significant or complex assets, divorce in California brings a new level of challenge. The state’s community-property laws often mean that income and property gained during marriage are considered shared, no matter who earned or built them. Without a clear separation between marital and individual assets, everything from businesses to trusts to unvested stock can become part of the equation. Understanding how California law handles high-asset property division is key to protecting your financial future.
When marriage ends, dividing assets isn’t just about who gets what—it’s about protecting years of hard work, investments, and planning
When a couple gets married, the possible end of their legal relationship is usually the last thing on their minds. It may even feel like a jinx to entertain the possibility that divorce may be in their future. If one or both of them enters the relationship with significant or complex assets, though, a divorce can be more than emotionally devastating. The process of asset division, pulling apart finances that have become entangled over years of marriage, can be contentious and destructive, especially when each party has expectations about what should be solely theirs that do not mesh with what California law dictates.
As a community property state, California considers everything a couple earns during their marriage as belonging to both equally. This can grant a soon-to-be ex-spouse an interest in their partner’s business, trust, or unvested equity unless proactive legal steps have been taken to clearly define boundaries between the couple’s marital property and separate property. Understanding the issues can help shed light on potential concerns and possible solutions to protect assets and promote a fair financial outcome for both parties.
What You’ll Learn In This Post:
- Why Should You Plan Ahead for Complex Asset Division in Divorce?
- How Are Trusts Treated in California Divorce Cases?
- What Happens to Family Businesses When Spouses Divorce?
- How Do Courts Handle Unvested Equity and Stock Options in California?
- What Legal Strategies Protect Complex Assets During Divorce?
- Why Work with an Experienced Family Law Firm for High-Asset Divorce?
- Frequently Asked Questions
Why Should You Plan Ahead for Complex Asset Division in Divorce?
A marital estate that includes a business, trust, or other complex assets can be extremely difficult and expensive to divide accurately in a divorce. While planning ahead for complex asset division may feel unnatural at the outset of a marriage, some of the best legal strategies available to set a clear financial understanding must be put in place in advance to be effective.
In addition, how a couple handles their finances can maintain boundaries between their separate and shared property or muddy the waters so completely that a forensic accountant has to be brought in to untangle what should belong to whom. Putting effective strategies in place to define property rights and maintain scrupulous records can reduce areas of conflict and simplify property division, ultimately easing the divorce process.
How Are Trusts Treated in California Divorce Cases?
How a trust is treated in a divorce in California depends on many factors, including the type of trust, when it was created, when the assets in the trust were acquired, and the relationship of each party to the trust. In general, trust assets are governed by California’s community property rules, with assets that are considered marital property subject to division. If a revocable trust (one that can be modified or canceled) is created by one spouse before marriage and funded only with their separate property, it is likely to remain separate in divorce.
Alternatively, if it is created by both spouses during the marriage and funded entirely with marital property, it would be divided equally. Complications can arise if separate and marital property are mixed in such a trust, opening up claims that the separate property has been transmuted into community property subject to division.
In an irrevocable trust, on the other hand, the assets become the property of the trust and are generally not subject to property division. If one spouse receives regular distributions from the trust, however, those can be factored into their income when determining any spousal or child support obligations.
What Happens to Family Businesses When Spouses Divorce?
In divorce, a family business is subject to division to the extent that it, or any part of its value, is considered community property. It can be the case that a business one spouse founded before the marriage, or that they inherited, grows in value during the marriage because marital funds were invested in it, or the non-owner spouse contributed to its operations. The value attributable to the owner’s work in the business can even give their spouse a partial interest in the business, because their labor during the marriage is a community asset. Unless there is a legal agreement in place establishing the business as separate property, it will be necessary to determine the spouse’s community property interest in the business.
Getting a business valuation from an objective third-party evaluator is key to setting a foundation from which to begin negotiations for a property settlement. Most often, one spouse prefers to buy the other out by exchanging their shares of other marital assets for full control of the business, but this can have unexpected tax implications if legal and financial professionals are not consulted first. If this is not possible, spouses may need to sell the business and split the proceeds according to their respective shares of its value or find a way to continue as co-owners despite the end of their personal relationship.
How Do Courts Handle Unvested Equity and Stock Options in California?
Unvested equity and stock options may or may not be considered community property, depending on when they were issued in relation to the marriage and the intent behind the grant. Although unvested options may not have a present market value, California courts do consider them subject to division and will use formulas known as time rules to calculate what portion of those options should belong to the non-employee spouse. The two main rules are the Hug formula, used mostly in cases where options were used for recruitment and as compensation for past services, and the Nelson formula, where options are incentives for future performance and to promote retention.
Distributing stock options (or the value of the options) can be complicated, as it can be difficult to assign a present value to them and the terms of the options may prevent direct transfer to the non-employee spouse. It is also critical to consider the tax consequences that will occur when equity vests or stock options are exercised and ensure that the divorce settlement addresses which party will be responsible for them, as property division may be unbalanced if one spouse ends up bearing the entire tax burden when proceeds are split.
What Legal Strategies Protect Complex Assets During Divorce?
Proactive legal strategies such as prenuptial and postnuptial agreements are among the best means to avoid protracted battles over asset division in divorce. These financial contracts clearly define separate versus marital property, which can protect premarital assets, inheritances, and gifts from being transmuted into community property. Putting a pre-existing business in an asset protection trust can also help preserve it as separate property.
Couples with a large portfolio of complex assets should also keep detailed financial records and avoid commingling separate and marital funds. Consulting with experienced legal professionals can provide additional insight into strategies appropriate for an individual’s unique circumstances as well as ensuring that legal agreements such as prenups are thorough and enforceable.
Why Work with an Experienced Family Law Firm for High-Asset Divorce?
In a high-asset divorce, the complexity of assets held in the marital estate can have significant implications for the ultimate outcome of property division. An experienced family law firm understands the applicable law that governs what each spouse is entitled to, the challenges inherent in accurately valuing complex assets, and the potential tax implications of different settlement strategies.
At Hoover Krepelka, our expert attorneys are skilled at protecting our clients’ interests in high-asset divorce, working closely with financial professionals to get a clear picture of what’s at stake and strongly advocating for an outcome that secures their financial future. To schedule your consultation, fill out the form below today.
Reach Out To Our Expert Attorneys Today
FAQS
How are trusts handled in a California divorce?
Trusts are generally treated based on how and when they were created—if a trust was established before marriage or funded with separate property, it may stay separate, but any marital contributions or commingling can make part of it subject to division.
What happens to unvested stock options or equity in divorce?
California courts often divide unvested stock options and equity based on when they were acquired, using a formula to separate what’s considered community property from what remains separate.
How do California courts divide family businesses during divorce?
Suppose a business was started or grew during the marriage. In that case, courts typically determine the community property value through a professional valuation, then divide it fairly, either through buyouts, asset offsets, or continued joint ownership.