If you co-own a business with one or more business partners, and you have an imminent divorce, you may be concerned about how your ownership interest will fare when you get to the property division portion of the divorce process. In many instances, an ownership interest in a business is a person’s single most valuable asset, and the prospect of losing a portion of it can be quite upsetting. Here is what to know about California’s property division laws as they relate to business ownership.
Community property laws
California is one of the few states that follows the community property model for marital property. This means that – with a few exceptions – any property that either spouse obtained during the course of their marriage generally belongs to both spouses equally. In other words, in most cases, everything you obtained after your wedding day will be subject to division.
Ownership interest in a business is an asset that can be divided just like any other asset. This means that it’s possible that your spouse might fight to obtain their fair share of your ownership interest – or that the value of that portion be offset with other assets or money out of your share.
Buy sell agreements
Sometimes, business partnerships will take steps to protect their company against this exact eventuality by including specific language in their buy sell agreement. A buy sell agreement is a contract between business partners that governs the company’s duty to compensate an owner for their ownership interest in certain circumstances. This agreement can be part of a partnership agreement, or it can be a separate contract executed later.
Some businesses make a buy sell agreement that forces their owners to sell their ownership share back to the business upon or before initiation of divorce proceedings, in order to prevent the partner’s spouse from taking part ownership. If you have one, read your buy sell agreement carefully to see whether this is the case in your situation.
You have worked hard to build up your business. With luck, you will hopefully be able to retain your ownership interest and continue to enjoy ownership even after your divorce concludes.