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Divorcing a Business Owner in California

by Steve Fritsch on October 8, 2015

Getting a divorce is not only emotionally complex, it can be confusing financially as well — especially if a business is involved. In most cases when a California business has been formed during a marriage it is considered to be community property, and half the value of the business can legally be claimed by the spouse. For businesses that rely on more than half their assets to operate, this can be a problem. Relinquishing half in reality means relinquishing the business. This often means a loss in income on a personal level as well as on a business level. If you are divorcing a business owner, you want to get enough out of the divorce in order to remain financially stable and protect your future, but you also want to be careful what you ask for. Asking for too much may mean that there will be less to give down the line.

Beware of Anger

Anger can be a big motivator, but it can also be a big barrier to common sense. There are some people who go into the divorce process angry and look to take their spouse for everything they have. The problem with that is that the money they spend on attorney fees in order to protect their assets is money that belongs to both spouses. It also begets more anger. It may cause the other spouse to try and hide more assets. It could sabotage their business and lead to less spousal support or child support after the divorce in complete. Whenever possible, it is better for the consequences of divorce to be mutually beneficial. There are plenty of hard parts in even the most amicable of divorces. There’s rarely a reason to make things harder than they have to be.

Watch Your Back

No matter how much effort a person puts into “being the bigger person” it is important not to take for granted that their spouse will do the same. That’s one of the reasons why working with a good divorce attorney is important. Especially when it come to cases where businesses have been successful, and the breakup falls into the category of a high asset divorce. Here’s just a few unethical or illegal things that some people will resort to in an effort to protect or hide their assets:

  • Stashing money in a safe deposit box or other place
  • Overpaying to the IRS in hopes of getting a large refund after a divorce
  • Underreporting income
  • Setting up dummy corporations or putting transferring assets to a family member, including a child

An experienced attorney is more likely to spot these tricks in order to assure that all things are considered when it comes to dividing assets, including the business.

Watch the Emotions

While some people try to take everything they can, others make the opposite mistake and give too much up just to make the process go by more quickly. They may waive spousal support, or give away assets that are not considered to be community property. Especially when there is a business involved, the divorce itself becomes a business transaction. It is important to leave everything on the table until it is time to take things off for the right reasons.

By the time the divorce is complete, it is likely that both sides will need to make compromises, but these need to be intelligent compromises. Instead of forcing the sale of a business, the spouse of a business owner may ask for an ongoing stake in the business or for more spousal support to offset the fact that they are giving up the business. They may make a stronger push for other assets, such as retirement accounts or the house. When a person starts a business emotions are involved as well as capital. It is smart for each person to decide what’s important, and use it to their advantage. Many couples work with mediators in these types of cases because it helps them stay focused on their ultimate goal.

Look at Tax Implications

Divorce changes a person’s tax obligations in many cases, but this is especially true when there is a business in the mix. As assets are distributed, it is important to look at different scenarios from a tax perspective as well and factor these into your agreement. At the Law Office of Steven L. Fritsch, we have worked with many people seeking divorce where a business was among the assets considered. No matter how complex your finances may be, our attorneys will look at your situation and help you make the decisions that are in your financial best interest. Contact us to set up a consultation.

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