Los Angeles County and Orange County Entrepreneur Seeking Divorce
Many entrepreneurs in California have learned that business can get in the way of their marriage. Indeed, the divorce rate in California is at least five percent higher for entrepreneurs than it is for other couples. The stakes can be high, wealthy entrepreneurs without a prenuptial or postnuptial agreement could see their entire net worth cut in half in a divorce settlement.
Prenuptial and Postnuptial Agreements for Entrepreneurs in California
If your spouse or future spouse is not already your business partner, it’s wise to prepare yourself for a possible split to safeguard your business assets for you and your partners in the event of divorce.
A prenuptial agreement is one of the best ways to protect your business before you walk down the aisle in California, a community property state. Without a prenuptial agreement, all income and property acquired during marriage are divided equally at divorce. Even if you owned the business before the wedding, without a prenuptial agreement, profits from your separate property business could be divisible. If your business is profitable during the marriage, you may be ordered to reimburse the community if you put extraordinary efforts into the business during marriage. To avoid a devastating or messy divorce, get a prenuptial agreement. It’s best to begin the drafting process at least six months before you get married. If the document is signed too close to your wedding date, your spouse could later contest it by saying it was signed under duress. Both spouses should hire separate attorneys—separate counsel is required for an enforceable spousal support waiver. The process will include a complete financial disclosure from both spouses including business assets, liabilities, and future earning potential.
A postnuptial agreement should be considered if you are an entrepreneur who is already married and you are thinking about starting a business. It works just like the prenuptial agreement, but it’s created after you marry. A well-prepared postnuptial agreement will allow you to keep your business and avoid forfeiting half of it to your ex-spouse if you have relationship trouble in the future
No prenuptial agreement? What happens to the business during divorce?
- Reimbursement. If the business was acquired prior to the marriage, business profits accumulated during marriage may need to be apportioned between the owner’s separate estate and the community. Anticipate a business valuation.
- Buy Out. One spouse buys the other spouse’s interest in the business. Without a prenuptial or postnuptial agreement, if the business was founded or acquired during marriage, it is likely community property. The other spouse’s name does not need to be on the business for them to be entitled to half of it. Anticipate a business valuation.
- Co-Ownership. Retain the business under joint ownership after the divorce. (This is rarely recommended.)
- Sell the Business. Find the buyer and split the proceeds. How the proceeds are apportioned will depend on whether business is separate or community property.
Business Appraisal During Divorce
The value of your business will need to be determined by an unbiased third party who is not connected to the business. The appraiser is usually a forensic accountant with significant family law experience, but the business valuation process often requires the assistance of multiple financial and industry experts. To come up with a fair price for your business, the appraisers will look through all invoices, books, company property, and other assets. The business’ assets, debts, and goodwill will be considered. The business valuation will also be used to determine how much income is available for child and spousal support, so personal expenses run through the business will be scrutinized.
The Spouse of an Entrepreneur Seeking Divorce in California
If you are a spouse of an entrepreneur, you should seriously consider hiring an independent forensic accountant of your own to ensure your future spouse is not concealing assets, hiding contracts, or bringing forth a fraudulent appraisal. (In certain cases, counsel may recommend hiring a neutral appraiser to reduce costs.) Once the value has been determined, it must be decided who gets the business, whether it will be jointly owned or how to compensate the spouse with a buy out. Oftentimes, the spouse who retains the business will compensate the other with cash, other marital property, or even additional long-term spousal support.
Whether you are the entrepreneur, or the spouse of an entrepreneur, having adequate support and looking to the future is crucial when facing divorce. The right counsel can help you assemble an outstanding team of experts to protect your interests, regardless of whether you are mediating your case or litigating in court.
Our Los Angeles County and Orange County divorce attorneys are here for all your needs:
- Prenuptial and postnuptial agreements;
- Divorce litigation;
- Collaborative divorce;
- Marital property division: financial interests, accounts, and real property, valuations of property, business ventures, family-owned businesses, partnerships, investments, 401(k) plans, retirement assets, intellectual property and more;
- Child custody and visitation;
- Child support;
- Spousal support (alimony);
- Domestic Violence Restraining Orders;
- Mediation consulting;
- Post-judgment modifications; and
Contact our High-Net-Worth Divorce Lawyers at Johnson Attorneys Group Today
If you are an entrepreneur seeking a divorce, or you are the spouse of one, Johnson Attorneys Group is here to support you. We can handle complex, high-net-worth family law issues related to alimony, child support, asset division, and more. Call (949) 942-8784 to request a private consultation with a divorce attorney.