Our Orange County Divorce Attorneys Understand the Needs of Business Owners in a Divorce

As an entrepreneur, getting divorced can present some difficult questions regarding the ownership of your business, intellectual property, and other assets. California’s default community property rules apply, but applying these rules to an early-stage business requires a comprehensive understanding of how the business is structured, when it was formed and to what extent (if any) your spouse has played a role in the business’s growth. Depending on the circumstances involved, your entire business could qualify as community property that is subject to equal distribution; the entire business could be yours to keep; or, as is often the case, a portion of your business could be at risk in your divorce.

Of course, getting divorced involves issues beyond determining how you can protect your business. Dividing your other assets, dealing with alimony and child support, and establishing child custody rights are all fundamental components of the process as well. As an entrepreneur, all of these issues are important (to the extent that they apply), and they all require careful attention. An effective divorce strategy will address all of pertinent issues in tandem, and it will be designed to achieve a positive outcome that protects your business and other interests to the fullest extent possible.

Protecting Your Business and Other Interests During Your Divorce

With regard to protecting your business, there are several factors that need to be considered. Our Orange County divorce lawyers have represented numerous entrepreneurs in divorce, and we have particular experience addressing issues such as:

• Valuation of Early-Stage Businesses – Valuing a business for purposes of a divorce differs from valuing a business for other purposes. Our lawyers can help you obtain an appropriate valuation and use it to your advantage.
• Determining the Separate or Community Property Nature of Privately–Held Businesses – Your business’s start date is an important factor for determining whether and to what extent it is at risk in your divorce, but it is not the only factor that requires consideration. We can make sure your business is not put on the table unnecessarily, and we can pursue various options for protecting any interest to which your spouse may be entitled.
• Handling Intellectual Property (IP) and Other Business–Related Assets – If you own IP or other business-related assets personally, these will need to be addressed separately from your business in your divorce. Our lawyers can work to make sure you retain all of the assets you need to continue growing your business.
• Negotiating for Sole Ownership of Privately-Held Businesses – Typically, it will be in entrepreneurs’ best interests to negotiate for sole ownership of their businesses. There are various strategies available, and we can use our experience in high-asset divorce negotiations to steer your divorce toward a favorable result.
• Implications of Business Ownership for Alimony, Child Support and Child Custody – Finally, business ownership can impact alimony, child support and child custody in various ways. As your divorce counsel, we will work closely with you to ensure that we are pursuing the best overall outcome in light of the particular circumstances involved in your divorce.

Schedule a Confidential Initial Divorce Consultation in Orange County, CA

If you have questions about the implications of getting divorced as an entrepreneur, we invite you to schedule a confidential initial consultation with one of our experienced Orange County divorce attorneys. To request an appointment, call us at 949-474-0800 or tell us how you would like to be contacted today.

About the Firm

Seastrom Tuttle Murphy Dockstader is a family law firm in Irvine representing clients throughout Orange County, and in Los Angeles County. The firm practices family law exclusively.

Its attorneys include Fellows of the American Academy of Matrimonial Lawyers and of the International Academy of Family Lawyers, and attorneys certified as specialists in family law by the State Bar of California Board of Legal Specialization. Members of the firm have served on the State Bar commission that authors the certification examination those specialists must pass, and have been recognized by Best Lawyers in America and Super Lawyers.

A business owner’s divorce turns on questions the court decides alongside the marriage itself. Which entities are community property and which are separate. What the operating company is worth on a date the parties dispute. How much of the growth during the marriage came from the owner’s labor and how much from capital that predated it. Whether a buyout can be structured so the business keeps its lending covenants intact.

The firm handles these questions for dealership groups, construction and trade contractors, restaurant and franchise operators, manufacturers, medical and dental practices, professional services firms, agricultural operations, and closely held holding companies. The recurring problems are the same across industries. Owner compensation that was never set at market. Goodwill that one appraiser treats as enterprise value and another treats as personal to the owner. Retained earnings that funded growth instead of distributions. Loans between related entities that were never papered.

Call 949.474.0800 to discuss the matter with the firm.

Common Questions

Who at the firm handles complex financial divorce matters?

The firm practices family law exclusively and has represented Orange County families since 1976. Its Certified Family Law Specialists, certified in family law by the State Bar of California’s Board of Legal Specialization, are Brian G. Seastrom, Philip G. Seastrom, Thomas W. Tuttle, Janet E. Dockstader, and Ryan Patrick Murphy. Certification requires demonstrated experience in family law, peer review, and a written examination. The firm handles closely held companies, multi-entity ownership and holding structures, retained earnings that funded growth instead of distributions, owner compensation never set at market, undocumented loans between related entities, and buyout structuring that keeps lending covenants intact.

Three longer treatments of the questions on this page: Dividing a Business With Dozens of Related Entities, on tracing, apportionment, and intercompany loans across a layered structure, Private Equity Interests in California Divorce Litigation, on carried interest, waterfall distributions, and multi-entity ownership, and Why Business Owners Choose Mediation Over Litigation.

Is my business community property in a California divorce?

It depends on when the business was formed and what funded its growth. A company started before marriage is separate property at its date-of-marriage value, but community labor and community capital applied during the marriage can create a community interest in the increase. California courts apportion that increase by examining whether it came primarily from the owner’s personal efforts or from the invested capital itself, and the two approaches produce materially different numbers. The characterization question is usually contested and usually requires a forensic accountant.

Will I have to sell my company to get divorced?

Usually not. In most business owner divorces the operating spouse keeps the company and buys out the other spouse’s community interest. The buyout can be funded by a refinance, by a deferred equalization note secured by the business, by an offset against other community assets, or in installments over time. Structuring the payment schedule so it does not breach the company’s lending covenants is a large part of the work.

How is a closely held business valued in a divorce?

A forensic accountant determines a value as of a date the court sets. The disputes concentrate in a few places. Whether owner compensation was set at market rates. Whether goodwill belongs to the enterprise or to the owner personally. Whether a discount applies for lack of marketability or for a minority position. Two qualified appraisers applying different but defensible assumptions can reach values that differ widely, which is why the methodology matters more than the headline number.

Can my spouse get access to my company’s financial records?

Yes. Both spouses owe a fiduciary duty of disclosure as to community assets, and the other spouse is entitled to the records needed to value a community interest. That normally includes tax returns, financial statements, general ledgers, and owner compensation records. Resisting production tends to cost more than it saves.