Orange County Divorce Lawyer
Divorce can be a tumultuous time in any individual’s life, with high emotions and financial concerns frequent throughout the process. These issues can be exacerbated when one or both partners in a marriage are professionals who own a business or private practice. In these cases, many high net worth individuals are left wondering what will happen to their business assets once the property division begins and how divorce will affect their business overall.
These concerns are of particular significance to Orange County residents, as the area not only features one of the highest divorce rates in the country but a large number of successful business owners and other professionals. When you are a professional and a divorce becomes imminent, how should you proceed? The most important step you can take to address your divorce and the separation of your property in a way that preserves your assets as effectively as possible is to consult with an experienced Orange County divorce lawyer.
OC, California and Community Property
California is among the “community property” states, requiring equal distribution of marital property. Determining the value of all that a couple owns is complicated, especially for professionals. More specifically, the court must determine whether the business is community property or separate property:
- Community property. By definition, community property is all property acquired during the marriage while living in California. Community property includes all debts incurred under the same circumstances, as well. Both are subject to equal division upon divorce.
- Separate property. Conversely, separate property is all property acquired either before or after the marriage and all property received via inheritance, will, or gift. Also, the profits received from owning the separate property, including rent received, are considered separate property.
How Community Property Can Affect Your Orange County, CA Business
As mentioned, not all property owned by one partner can be considered community property to be divided in a marriage settlement agreement during divorce proceedings. For example, if you inherited property or earned certain assets before your marriage, you would generally be able to retain those assets as separate property. Similarly, businesses or practices established and thriving before your marriage are your separate property and likely not subject to standard community property dissolution.
In summary, your spouse is generally not entitled to half your business assets if the business in question is a family business you inherited from your parents or a sole proprietorship you began before marriage. Consult an experienced Orange County divorce lawyer to determine the specifics of your situation.
Orange County, California, Division of Property
While California mandates that each spouse in a divorce must receive 50% of all community property, the state does not mandate an in-kind division of property. With an in-kind division of property, each asset—to include home values, businesses, and other property—must be divided equally. In California, while the division of assets must remain equal and balanced in value, the net value of assets received by one spouse must simply match that of the other spouse.
If you established a business while married to your spouse, it might not be necessary to divide the business itself. Instead, the court could determine that your spouse is entitled to assets equaling the net amount of half the business’s valuation—one reason that seeking a proper valuation of assets is so essential during any high-asset divorce proceedings. If you established the business before marriage or inherited a family business, its value upon divorce is not community property.
Business Valuation and Goodwill
However, it is still possible your business may be affected due to your Orange County divorce—particularly if you began the business together. Even family businesses may be subject to community property laws if you assigned your spouse a title, relinquished some control over business proceedings, or added them to incorporation documents. In addition, a concept known as “goodwill” could apply even if you have not taken these steps.
The value of an ongoing LLC, sole proprietorship business or professional practice may include “goodwill.” Take the example of an attorney at a law firm, or a doctor. Not only do they have an annual income, retained earnings and “perks” as a business owner, they have a reputation that generates referrals and a relatively predictable ongoing clientele. The public knows of the business and has confidence in it.
Therefore, the spouse who is a partner in the business “owns” something of value that must be included among assets to be divided. The other spouse must receive property or assets to balance this value. The spouse is essentially a “silent partner” in the business and must be “bought out” in a manner of speaking.
A professional in a large firm or practice in addition to their salary, generally participates in partnership earnings, stock options, bonuses and other sources of revenue to which the spouse may be entitled.
Business Appreciation and Orange County Divorce
If the law firm or business existed prior to the marriage, the spouse may not have an interest in it. But growth of the firm and goodwill may be part of the marital estate to be shared upon divorce. For example, if your business was established before marriage with separate funds, but the business’s flourishing and growth occurred after marriage, it makes a difference. With the help of community funds, your spouse may be entitled to a portion of the appreciated value as community property. The key to determining a spouse’s share of business appreciation is determining how and why the business experienced its growth.
In most cases, if your spouse contributed financially to your business, and the business has flourished in part due to their skill, expertise, and efforts, those efforts are considered community efforts. Each spouse retains their investment, with interest, and additional profits are considered community property. However, if appreciation can be attributed to a factor outside the marriage, such as a positive change in the market, each spouse retains the value of their property contribution during the marriage. However, the appreciation may not be attributed to any effort of your spouse.
Orange County Professional Divorce Lawyers FAQ
While 100% of the final division of your assets—to include your business—depends on the thorough, transparent valuation of your business and the judge’s final decision, most Orange County professionals want to know what to expect before the process begins. The answers to these and other frequently asked divorce questions can help you anticipate any hurdles during your divorce proceedings.
Q: What will a judge consider during a professional divorce in Orange County?
A: Primarily, a judge will consider the valuation of your business as well as if any aspects of the business are considered community property, according to whether the business was established during or outside the marriage. The judge will consider who the primary owner of the business is, including which names are on business registration documents and how much time and assets each spouse contributes to its operation. Finally, the judge will consider whether a prenuptial agreement exists that protects the business from division.
Q: Will my spouse receive half my business if we divorce?
A: If your business is an inherited family business or established before marriage, your spouse will not receive half as community property. However, if your business was established after marriage and your spouse participated in its operation, the court will determine the extent of each of your contributions to the business before suggesting division. In some cases, parties reach an agreement before a divorce trial becomes necessary, where one spouse retains control of the business, buying out the less-involved spouse. Consulting with an experienced divorce and family law attorney is the best way to weigh your options if your spouse is involved in the business’s operation.
Q: Is it possible to protect your business during a divorce?
A: Protecting your business from division is much simpler if you are the primary owner, owned the business before marriage, and have kept your partner separate from the business, including establishing your name as the sole name on any business documents. Suppose you founded the business after your marriage but have put forth the vast majority of the effort necessary for its success. In that case, you must begin gathering evidence of your control. An experienced high-asset divorce attorney can help you prove that your business was successful due to your financial contributions, expertise, skills, and work ethic.
Call Us Today to Start Working Toward a Better Tomorrow
Divorce Attorney Dorie A. Rogers has 30 years of experience providing legal advice to clients involved in high asset divorces. Our legal team has extensive experience and familiarity with complex property division, especially in high asset divorces. Our goals include maximizing your share of complex property division, but also minimizing your tax implications.
For more information, or to schedule a consultation with an Orange County divorce lawyer, please call us at 714-602-1492 or send us an e-mail.
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