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What Happens When Spouses Co-Own a Business in a North County Divorce?

On Behalf of | Jan 4, 2020 | Professional Practice & Business Ownership

What happens when spouses co-own a business in a North County divorce? There are many spouses who purchase a business together, and work side-by-side to make the business successful. What happens to this business in the event of a divorce?

The key to these answers lies with the parties themselves.  Is the business viable without one or both of the parties?  Is one the center of the business itself while the other simply plays a supporting role?  Can they continue to work together in a professional environment?

We are encouraged that more and more couples today are working to remove as much emotion from the equation as possible.  This allows a person to make better long term decisions based upon facts and sound counsel instead of upon negative emotions.  In this example, it may provide an opportunity for the business to continue operations as is.  If the former spouses can maintain a professional working relationship and wish to continue the operation of the business, then both should be able to keep their interest in the company after the divorce.

However, the business in this example would absolutely be considered community property.  If the parties cannot continue to work together, the asset must be valued, and the parties would have two options at that point:
1. Sell the business and divide any remaining proceeds once all debts and liabilities are retired, or
2. One of the spouses must purchase the business from the other by paying half of the community property interest in the business.

In the second option, a valuation must be established by the Court or agreed upon by the parties.  Once the valuation of the business is confirmed, each spouse would be entitled to half of that amount as the community asset is divided.  Therefore, if one of the parties wishes to keep the business, the spouse who wished to consider “ownership” would have to compensate the other spouse for their half of the business interest.

This can be accomplished in multiple ways.  If there is cash on hand or substantial investment or retirement accounts in the “owner’s” portion of the community property, they might simply shift that to the other party in return for the business ownership.  If there is not enough in those assets, one might consider the equity in a family home or other property.

One must be cautious. An investment account worth $10,000 with a tax basis of zero is worth a lot less than an account with the same value and a tax basis of $5,000 (as you would owe less tax in capital gains if it were sold).

This is why it is so important to work with the experienced Certified Family Law Specialists at Burke & Domercq, APC.  Our attorneys have represented business owners in divorce here in Carlsbad and North County San Diego for decades.  We are skilled negotiators and advocates who aggressively and effectively protect our client’s goals and interests.

If you are considering a divorce in North County or Carlsbad and co-own a business with your former spouse we invite you to review the recommendations of our clients and contact us or call 760-389-3927 to schedule an appointment.