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Proactively protecting your business from divorce

On Behalf of | Dec 5, 2022 | Divorce

As a business owner, you view your business as your baby. You put a lot of work into making it a success and you plan on operating it for years to come.

Still, your business is considered an asset. If you divorce in California, your assets will be divided between your spouse and you. What does this mean for the business you built so carefully?

Your business may be community property

California is considered a community property state. Community property includes anything you and your spouse bought or earned during the marriage. A business you started while you were married or that was supported by marital funds and efforts is considered community property.

If you divorce, your community property will be split evenly between your spouse and you because you both have an equal ownership interest in it. This means that your spouse could be issued a share of your business.

This could be an unwanted effect of a divorce. However, there are ways to proactively prevent your business from falling into the hands of your spouse if you divorce.

Protect your business from divorce

One way to proactively protect your business from divorce is to execute a prenuptial agreement prior to marrying. In a prenuptial agreement, you and your spouse will agree about which assets are to be community assets, and which will stay in the separate ownership of one spouse or the other.

If you started a business prior to marrying, your prenuptial agreement can state that the business is to remain your property only if you divorce.

Another option is to place your business in a revocable trust. This way, the trust owns the business, not you. If you divorce, assets in the trust cannot be included in the property division settlement.

Keep in mind that the law does not permit fraudulent transfers. This means that you cannot place your business in a trust solely because you know you are getting a divorce and you want to hide it or otherwise keep it out of the marital estate.

These are only some ways to protect your business from divorce. If you are getting married or are already married and you want to make sure your business will not fall into the hands of your spouse should you divorce, you can take steps to ensure that your business is safe.