Protecting Your Business in a Divorce

While divorce is extremely common, few people entering a marriage go into it with thoughts of becoming a divorce statistic. However, over 50 percent of marriages ending in divorce.  Accordingly, protecting your assets is key. In particular, entrepreneurs and business owners stand to lose quite a bit, considering their life’s work may be wrapped up in a business that their former spouse may be entitled to under California’s divorce laws. An experienced Irvine divorce attorney can counsel you toward a resolution that keeps your business and its holdings intact. 

Even if you aren’t planning to divorce, there are certain safeguards you can put in place to ensure that an event like a divorce doesn’t threaten your business. Eager to learn more about what you can do to protect your business in a divorce? Below, we outline several key steps to keeping your business safe and sound during a divorce.

Maintain Good Records and Pay Yourself a Decent Salary

It’s best not to mix your home finances with your business finances, so try to refrain from borrowing money against your personal assets, like your home. Additionally, paying yourself a good salary is key to ensuring a court doesn’t order you to pay more out of your company’s assets down the line in a divorce. 

Fire Your Spouse

If your spouse is actively involved in the business, it may be time to let them go. The more prominent your spouse’s role is in your company, the more likely it is that they will be able to retrieve a substantial portion of the business upon your divorce. Their attorney could make the argument that your spouse helped build the enterprise and should profit from its growth.

Be Strategic in Your Negotiations

In a divorce, your Irvine divorce attorney will work with you to calculate your total assets and debts and divide them as equitably as possible. If your primary goal is to keep your business, then you should consider that when determining what – and how much – you’re willing to part with. 

Determine the True Value of Your Business

Hiring a knowledgeable and neutral third party to assess your business’ value is crucial to ensure you aren’t sacrificing too much in a divorce. Don’t allow an appraisal to calculate the value as a future projection, but rather make certain that they only evaluate how much it’s worth right now.

Contact an Irvine Divorce Attorney

If you’re currently considering divorce and are concerned about whether your business will be in jeopardy, you should work with an experienced Irvine divorce attorney who understands the unique complexity of your position. Contact our office today.

Frequently Asked Questions

What can a business owner do to protect the company before a divorce?

Before a marriage or before a dispute arises, the effective tools are a premarital or postnuptial agreement characterizing the business as separate property, clean corporate records that keep company and household finances genuinely separate, an owner salary set at a defensible market rate, and a buy-sell agreement that has actually governed real transactions among the owners. Once a case is filed, the automatic restraining orders limit what can be done, so the protective steps are documentary rather than structural: get the records in order and get a defensible valuation.

Does the other spouse have a claim on a business they never worked in?

Frequently yes. Community property turns on when and how the interest was acquired and on whose labor built it, not on who participated in operations. A business founded during marriage is generally community regardless of which spouse ran it. Even a business owned before marriage can carry a community interest, because growth attributable to the owner spouse’s efforts during marriage belongs to the community. Non-participation by the other spouse does not reduce the claim.

Can the business be kept out of the litigation entirely?

Not out of the case, but largely out of the public record, and that distinction is what most owners actually want. Litigation puts the valuation, the general ledger, the margins, the customer concentration, and the owner’s compensation into publicly filed declarations and open-court testimony. Resolving those issues in mediation or before a private judge keeps the same material in a private exchange, with only the settlement submitted for judgment. Employees, competitors, and lenders can read a court file; they cannot read a mediation.

What documents should a business owner assemble at the outset?

Three to five years of business tax returns with all schedules, the general ledger and financial statements, formation and governing documents including any buy-sell or shareholder agreement, records of owner compensation and distributions, documentation of any separate-property funds contributed to the company, loan applications and covenants, and major contracts. Assembling this early serves two purposes: it is required by the disclosure obligations regardless, and it lets a valuation be built on an accurate record rather than on whatever the other side’s expert reconstructs.