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How your partner’s divorce can affect your business

On Behalf of | Sep 19, 2022 | Business Formations

When you and your partner first incorporated your business, everything was going great for you both. Two happy marriages — and success seemed imminent.

Ten years down the road, your business is still booming. But your partner’s marriage has become both explosive and untenable for the two partners. Divorce is on the horizon. Will it affect your business?

Protect your business from divorce

Divorce can create devastating consequences for business partnerships – and the business itself. The best way to avoid these situations is by having the spouses of the partners sign prenuptial agreements. If the business incorporates after the marriage, postnuptial agreements can also protect your business.

But what if it’s too late for that?

You can’t save your partner’s marriage, but you can and should save your business. It will likely need to be professionally valuated – an expensive and invasive process wherein your financial records are scrutinized closely, along with your business assets.

California is a community property state

When California residents divorce, all their debts and assets get divided equally. So, your partner’s interest in the business is also up for grabs, barring any court orders declaring it off limits in the event of divorce.

Even when a prenuptial or postnuptial agreement is in place, if your partner’s spouse contributed meaningfully to the growth of the business or for other complex legal reasons, they might still be able to lay claim to a portion of the worth of the business.

If that sounds incredibly complicated, it can be. That’s why it is best to learn all you can about how California’s community property regime could affect your business.