We are often asked: Can my ex claim part ownership of my LLC in our Carlsbad divorce? Business ownership can complicate a divorce, particularly when one spouse claims part ownership of a closely-held business interest.
If one spouse owned the business prior to the marriage, then it is possible that the court will consider the value of the business to be separate property and, therefore, not subject to division between the parties in the divorce. The owner of the business may also need to prove no marital funds or other forms of support were contributed to the company during the course of the marriage. In order for an asset to remain “separate” it must not be commingled with marital assets or funds.
However, if a business was acquired or established during the course of the marriage, the value of the ownership interest must be considered during the process of marital property division. It doesn’t matter if all ownership is held under the name of one spouse.
It surprises many clients to learn they must disclose assets and debts which are in either or both of the former spouse’s name. This means all assets and liabilities must be disclosed to the Court and the opposing party, regardless of when they were acquired or obtained.
If the business was started or acquired during the course of the marriage or marital funds were used to support the business it would not be unusual to see your ex claim part ownership of your LLC.
If you own your own LLC you will need the proven, sound advice of our experienced Certified Family Law Specialists in order to protect your business in a Carlsbad divorce. Some will argue a portion of any appreciation in the value of your LLC during the course of the marriage may be considered marital property and may be subject to division in a divorce. It may also be argued the “creation of marital value” applies to joint funds used to expand or invest in the business, or the spouse’s contributions to the business, if those contributions helped in the operation or the growth of the business.
Generally speaking, California Family Law establishes the value of a business interest acquired during the marriage is marital property and is subject to a distribution analysis (unless the value was acquired with separate or pre-marital funds). Generally, one spouse may be entitled to receive 50 percent of the value of the business unless a court deems an equal division to be inequitable or unfair. When marital funds or effort are used both spouses are considered to have contributed equally to marital property that is produced or acquired by either one of them during the marriage. The fact that the business interest is only in one spouse’s name is not the deciding factor this analysis.
Can my ex claim part ownership of my LLC in our Carlsbad divorce? Yes, the opposing party can attempt to “claim” anything, really. However, just because one spouse may be entitled to half the value of a former spouse’s business interest, this does not necessarily mean half of the business itself.
Your options as a business owner might include buying out the interest of your ex or “offsetting” their marital portion of the business with other assets or funds. In other cases, a simple contract may agree to make payments over a period of time to retire your ex’s interest. The last option is to sell the business interest and divide the proceeds of the sale.
Protect your own interests and contact us or call 760-434-3330 to schedule an appointment for a remote or socially distanced consultation with one of our experienced Certified Family Law Specialists.