How Are Business Assets Divided if I File for Divorce in Beverly Hills?
California is a community property state. Therefore, all marital assets are divided equally between the spouses during a divorce. However, business assets can be more complicated to divide than bank accounts, furniture, and vehicles.
If you are considering a divorce or separation in Beverly Hills and have business assets, seeking legal advice immediately to protect your interests is important. Below are some things you should know about dividing business assets in a divorce in Beverly Hills.
How Are Business Assets Divided in a California Divorce?
Business assets are treated the same way as personal assets during a divorce in California. The first step is determining whether the business assets are marital or separate property.
Marital property is subject to community property rules. Therefore, if you began the business after you were married, it is likely marital property even though you started the business and were more involved in the business than your spouse.
Separate property is not divided in a divorce. It remains the sole asset of the spouse who owns the asset. Therefore, if you owned a business before the marriage and were very careful to maintain the separate nature of the business, it might not be subject to community property rules.
Business assets that are marital property can be divided in one of two ways. The spouses can negotiate an agreement to divide the business assets. If the spouses disagree on how to divide a business, the court decides how to divide the business assets equally between the spouses.
Dividing Business Appreciation in a Beverly Hills Divorce
Even though a business might be separate property, the business appreciation during the marriage may be subject to division in a divorce. California courts use one of two methods to divide business appreciation – the Pereira or Van Camp method.
The court uses the Pereira method of dividing business appreciation when the increase in value is because of the efforts of one spouse during the marriage. The effort may be in labor or management.
A business valuation determines the current value of the business. The value of the business when the spouses are married plus a reasonable rate of return equals the owner spouse’s separate property interest in the business. That amount is deducted from the current business valuation to determine the community property amount to be divided equally between the spouses.
The court uses the Van Camp method when the business appreciation results from capital appreciation and/or market factors. First, the court determines a reasonable salary the owner-spouse would have earned had they been a company employee. That amount is multiplied by the number of years the couple was married.
Then, the courts deduct any salaries already received and payments for community expenses. The result is community property to be divided equally. The remaining amount remains the separate property of the owner-spouse.
Can I Buy Out My Spouse Instead of Dividing Business Assets in a Beverly Hills Divorce?
In theory, you can buy out your spouse if you own the business together and you want to continue operating the business without your spouse’s input or interference. However, the amount you pay could be more than one-half of the current business valuation. Your spouse may claim that they are entitled to an amount that compensates them for what they could have expected to earn had they retained one-half of the business.
Is My Spouse Entitled to One-Half of the Family Business I Inherited?
Typically, inherited assets are not subject to community property rules unless the assets are commingled with marital assets. If you kept the inherited family business completely separate during the marriage, your spouse might not be entitled to one-half of the business assets.
However, if your spouse contributed to business growth or appreciation, they could be entitled to some of the business assets. The best way to protect inherited assets is to work with a Beverly Hills property division lawyer to develop a framework to keep the family business completely separate from marital assets.
Protecting Your Business in a Beverly Hills Divorce
There are several ways to protect a business during a divorce in California:
- Execute a pre-nuptial or post-nuptial agreement defining the business assets as separate property belonging to the owner-spouse. If you choose to do so, you can agree on how to divide the business assets instead of making them solely the property of one spouse.
- Use a trust to hold the business instead of owning the business in your name.
- Negotiate your property division settlement outside of court using alternative dispute resolution such as mediation.
- Never commingle your business with marital assets.
If you need help protecting your business, seek legal advice. An experienced Beverly Hills divorce lawyer can help you develop a plan that keeps your business in your name.
Contact a Beverly Hills Family Law Lawyer Today
If you’re going through a divorce, you need a strong team on your side fighting for your rights. Call Berenji & Associates today to know how we can assist you.