When it comes to the divorce process, there are numerous forks along the way that turn an uncontested divorce into a contested one. In the broadest terms, it comes down to dividing assets, taking ownership of marital debts, and discussing child custody (if applicable). Though you may have a general understanding of how bank accounts and mortgages get divided, things such as family-owned businesses aren’t apparent.
However, though your situation will present its own unique challenges, there are methods and options for handling a business during a divorce. Here are a few ways to accomplish it, and you can use them as a jumping-off point for when you meet with your attorney.
Separate Vs. Community Property
If you began the business before marriage, California has two different approaches to the degree to which it is separate and community property. California uses the Pereira formula when labor rather than the market drives the company’s success. It determines the value of the business before the business owner got married. That value is added to an estimated return—and that amount is the owner’s separate property. The remainder is shared.
The Van Camp formula gets applied when the market is the source of the company’s growth. For example, imagine a situation where married couples receive passive income because the business was established and generating profit. Regardless, it also concludes the degree to which the business owner is a community and separate property.
Dividing The Business
After the value of your business has been established, one spouse can choose to buy the other one out. One element to consider is the amount of money it would cost. If the company is worth $2 million, you could see the potential for conflict.
Another option is to sell it outright and divide the proceeds. The challenge is receiving an offer that you and your spouse are willing to accept. If you received a $2 million valuation, that doesn’t mean you get an offer for that amount. The appraised value of a home doesn’t equate to cash in hand either.
Lastly, there is the option to continue running it together—or one person runs, and the other receives a percentage of the profits. There are emotional elements to consider, and whether this is your ideal option is something to discuss with your attorney.
The Grey Legal Group, APC
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