If you or your spouse owns a business, dividing that asset during a divorce can get complicated. In California, businesses started during the marriage are generally considered community property—meaning they’re subject to a 50/50 split. But how do you value a business? What are your options for division? And how can you protect it, both before and after divorce?

In this video blog, we’ll break it all down—from business valuations and division strategies to prenuptial agreements and financial best practices. Whether you’re the business owner or the spouse of one, this guide will help you understand your rights and protect your financial future.

If you’re navigating a divorce involving a business, Mohajer Law Firm is here to help. We specialize in family law and are dedicated to protecting your financial interests and business assets.

Transcript:

In every divorce case, you need to divide your assets and debts. But today, we’re going to focus on whether you own your own business and how that’s handled in a divorce proceeding. We’re going to discuss how California treats business assets in divorce. We’re going to discuss what a business valuation is and its importance for your case, as well as some options in dividing your business asset. Lastly, we’re going to talk about how to protect your business before and after divorce. 

For those who don’t know me, I’m Sina Mohajer with Mohajer Law Firm. We specialize in family law, criminal defense, estate planning, and personal injury.

In these videos, I like to tackle complex issues and try to simplify it for our viewers in order to give you the upper hand and the knowledge to handle your case more effectively. So if you like the contents of this video, please hit that like button. And don’t forget to subscribe. So you’re always informed of any new videos being posted. And without further ado, I welcome you all to our new mini series called A Walk in the Park. 

Dividing Business Assets in Divorce

So how does California treat business assets in a divorce? Well, you have to remember, California is a community property state, which means anything acquired from the date of marriage to the date of separation is presumed to be community property. And it needs to be divided 50/50.

Anything acquired before the date of marriage or after the date of separation is going to be presumed to be separate property, which doesn’t get divided, and you’re entitled to all of it. So if you started your business during the duration of the marriage, it’s going to be presumed to be a community asset and it needs to be divided 50/50. But how the heck do you divide a business if you don’t know its value? 

Business Valuation

That’s where a business valuation comes into play. It allows a court to determine a definitive value of this business in order to divide it 50/50 and more equitably.

But what are some approaches? Well, there’s three different approaches when it comes to a business valuation. There’s a market approach which looks at similar businesses sold in the market and its value. There’s the income approach, which looks at the potential earnings of that business as well as the asset approach, which looks at the assets and liabilities that business has in order to determine its value.

It’s very important that during this stage we get an expert, a business evaluator, expert to be able to look at the business to determine which approach is going to be best suited for your case, to minimize how much you might have to pay the other spouse or perhaps to maximize your profit when you’re looking at a business the that your spouse might have started.

How to Divide the Business

Some options in dividing the asset. However you’re looking at three main options. First option is to buy out the other spouse. If your business is valued, let’s say at $100,000, then you buy out the other spouse for half its value, $50,000.

Another option is just to sell the business outright and split the proceeds equitably.

The last option, which might not be my favorite option, but still a viable option is to conduct the business as a partnership, post-separation or post-divorce, where the two of you are still in this business together, sharing the profits accordingly.

Protecting Your Business Before and After Divorce

Now, one way of protecting, or I should say, multiple ways of protecting your business before and after divorce.

Prenuptial Agreement

Well, before divorce, you’re looking at a prenuptial agreement or a post nuptial agreement. I’ve got other videos where I dive deeper into the differences and what’s involved. But having that type of an agreement resolves this issue outright, and you don’t have to worry about trying to litigate it in court. It determines or sets forward the rules in place at the time of divorce how this business will be divided.

Operating Agreement

Another way of protecting your business, either before or after divorce, is having an operating agreement in place. Perhaps at the time that you establish this business, for if the two of you were to separate or for you to get divorced, what’s going to happen with the business? Who’s going to operate it? What would be the buyout, etc.?

Keep Personal and Business Finances Separate

The last way of protecting this business is ensuring that your personal finances are being separate from your business finances. The last thing you want to do is commingle the two because it gets convoluted and more complicated in order to be able to differentiate the two expenses or the two different financial documents. So keeping them separate is going to be key. 

Questions About Dividing a Business in Divorce

We talked about how California treats business assets and divorce. We talked about what a business valuation is and the different approaches taken, as well as options in dividing this asset. And lastly, protecting the business before and after divorce.

So if you have questions about your case, I welcome you to call our office and schedule a consultation. I’m happy to sit down with you one on one to discuss your case in more detail or even come up with a strategy that might be best suitable for your situation.

And again, if you like the content of this video, please hit that like button. And also, don’t forget to subscribe. So you’re always informed of any new videos being posted.