Dividing a business in California divorce

When one spouse has a small business, it can become a difficult issue to divide at divorce.  Everything the couple acquires during the marriage is community property, so if the business was started after the marriage, then the business is community property and must be divided in divorce.  Generally this means that the business is valued, and the spouse working in the business buys out the interest of the other spouse.  It is the value of the business that is generally the point of contention in the divorce.  Further complicating things is when the business was started before the marriage and continued during the marriage, as the amount of growth in the business during the time of the marriage must be valued and divided – with the same attendant conflicts over how to determine this value.

Often, it is the non-working spouse (by non-working, I mean not working in the business. This spouse may very well be working, but not as an owner of the business in question) who believes that the business is worth a great deal more than the working spouse thinks.  Since there are dozens of ways to value a business, this can  become a war of the experts in divorce court.  In addition, a business can be derailed by the distraction of the divorce as well as the ultimate financial payout.

There are ways to avoid this, but generally they involve planning.  First, you can create a pre-nuptial or post-nuptial  agreement that provides for the division of the business in the event of divorce, and at least can specify how the business will be valued so that this is an argument you can avoid.  Life insurance can be used as a protection against both the death of the working spouse or in the event of a divorce.  In business, we buy insurance to protect injuries on our property, for our employees, and for our potential legal liability, but forget that we may need insurance in case we are unable to work or are in the process of divorce.

Every small business owner should take steps to protect themselves, their business and their family in the case of divorce or death.  A financial advisor, divorce and estate planning attorney can help.

Advertisement

Dividing a business in California divorce

When one spouse has a small business in California, it can become a difficult issue to divide at divorce.  Everything the couple acquires during the marriage is community property, so if the business was started after the marriage, then the business is community property and must be divided in divorce.  Generally this means that the business is valued, and the spouse working in the business buys out the interest of the other spouse.  It is the value of the business that is generally the point of contention in the divorce.  Further complicating things is when the business was started before the marriage and continued during the marriage, as the amount of growth in the business during the time of the marriage must be valued and divided – with the same attendant conflicts over how to determine this value.

Often, it is the non-working spouse (by non-working, I mean not working in the business. This spouse may very well be working, but not as an owner of the business in question) who believes that the business is worth a great deal more than the working spouse thinks.  Since there are dozens of ways to value a business, this can  become a war of the experts in divorce court.  In addition, a business can be derailed by the distraction of the divorce as well as the ultimate financial payout.

There are ways to avoid this, but generally they involve planning.  First, you can create a pre-nuptial or post-nuptial  agreement that provides for the division of the business in the event of divorce, and at least can specify how the business will be valued so that this is an argument you can avoid.  Life insurance can be used as a protection against both the death of the working spouse or in the event of a divorce.  In business, we buy insurance to protect injuries on our property, for our employees, and for our potential legal liability, but forget that we may need insurance in case we are unable to work or are in the process of divorce.

Every small business owner should take steps to protect themselves, their business and their family in the case of divorce or death.  A financial advisor, divorce and estate planning attorney can help.

Dividing a business in California divorce

When one spouse has a small business, it can become a difficult issue to divide at divorce.  Everything the couple acquires during the marriage is community property, so if the business was started after the marriage, then the business is community property and must be divided in divorce.  Generally this means that the business is valued, and the spouse working in the business buys out the interest of the other spouse.  It is the value of the business that is generally the point of contention in the divorce.  Further complicating things is when the business was started before the marriage and continued during the marriage, as the amount of growth in the business during the time of the marriage must be valued and divided – with the same attendant conflicts over how to determine this value.

Often, it is the non-working spouse (by non-working, I mean not working in the business. This spouse may very well be working, but not as an owner of the business in question) who believes that the business is worth a great deal more than the working spouse thinks.  Since there are dozens of ways to value a business, this can  become a war of the experts in divorce court.  In addition, a business can be derailed by the distraction of the divorce as well as the ultimate financial payout.

There are ways to avoid this, but generally they involve planning.  First, you can create a pre-nuptial or post-nuptial  agreement that provides for the division of the business in the event of divorce, and at least can specify how the business will be valued so that this is an argument you can avoid.  Life insurance can be used as a protection against both the death of the working spouse or in the event of a divorce.  In business, we buy insurance to protect injuries on our property, for our employees, and for our potential legal liability, but forget that we may need insurance in case we are unable to work or are in the process of divorce.

Every small business owner should take steps to protect themselves, their business and their family in the case of divorce or death.  A financial advisor, divorce and estate planning attorney can help.

 

Why You Want to Know How Much Your Business Is Worth

Today’s repeat guest blogger is Sarah Tolson, a Certified Financial Planner with her office in Danville.  Her bio and contact information are below.

Business Valuation Can Be Valuable Even When No Sale Is Planned If you have no plans to sell your business, an up-to-date valuation may seem like an unnecessary expense. But you might be surprised at how important the current value of your business can be to achieving your long-term goals. The current value of your business can affect how you approach everything from retirement to estate conservation and your succession strategy. Your Retirement Lifestyle The typical business owner has 50% to 70% of his or her net worth in the business.1 If you expect your business to help fund your retirement, a significant change in value might mean you need to adjust the amount of income you are investing for retirement. A shift in value might also affect the date at which you expect to retire, which could influence the timing of your decisions about the kinds of preparations you expect to make to get the business ready to sell or pass on. Estate Conservation and Succession It’s understandable if you would rather not spend too much time thinking about whether your business has lost value, but there could be an upside to knowing. If you are expecting to transfer ownership to the next generation, lower asset values may help you transfer a larger share of the business without tax consequences. If your business has a buy-sell agreement that values the business too highly, a more reasonable valuation may help the survivors or successors take over without paying more than the business is actually worth. If you discover that your business is responsible for more of your net worth than you realized, it could indicate that it’s time to diversify away from the business. It’s rarely a wise move to let your financial future hinge on the fate of a single asset — even if it is your own business. Given the events of the past few years, you may be more inclined to focus on today’s problems than on what could happen years from now. But a precise valuation may provide you with valuable information that you didn’t realize you needed. 1) Financial Advisor, August 27, 2010

Sarah Tolson, Certified Financial Planner™ recipient, is passionate about building the next generation of her family’s legacy of personalized financial planning; and she is committed to helping professionals create wealth-building plans tailored to  their age, goals, and life circumstances. Sarah joined her family’s wealth-building business to help the children of her family’s clients begin to start building their own wealth, with someone who understood their values and who would not be judgmental or lecture them like a parent. Sarah has a Bachelor of Science in Business from the Kelley School of Business at Indiana University. She joined her family’s firm in 2006 after several years in a successful retail merchandising career with Target Corporation and Abercrombie & Fitch. As an active member of the Junior League of the Oakland-East Bay and the Pleasanton North Rotary Club, Sarah participates in philanthropic work regularly. Sarah is on the Board of Directors for the Financial Women’s Association of San Francisco and helps to organize events especially for members who live in the East Bay. She is also the Vice President for the Founder’s of Success chapter of Business Network International (BNI) and a member of e-Women Network. In addition to financial consulting, Sarah is an entertaining and captivating public speaker; and she is currently writing a book about financial planning for women with young families. In her spare time, Sarah enjoys playing tennis, cooking, and traveling. 4115 Blackhawk Plaza Circle, Suite 100, Danville, CA 94506 phone:                         (925) 736-3024             / fax: (925) 736-3026 www.GirlsJustGottaHaveFunds.com   The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

Sarah Tolson is a registered representative of and offers securities, investment advisory, and financial planning services through MML Investors Services, Inc. Member SIPC. (2121 N. California Blvd. #395, Walnut Creek, CA 94596 (925) 979-2300). CA Insurance License #OF43069.