18 April 2025
The answer depends on several factors, including when and how the business was started, how it was managed during the marriage, and whether it is considered community or separate property under California law.
Community Property vs. Separate Property in California
California is a community property state. That means, in general, any property (or debt) acquired during the marriage is presumed to be owned equally by both spouses—unless proven otherwise.
So, what does that mean for your business?
- If your business was started during the marriage, it’s likely to be considered community property—meaning your spouse could be entitled to half its value.
If your business was started before the marriage, it may be considered separate property. But that doesn’t necessarily mean it’s off-limits in divorce proceedings.
When a Separate Business Becomes Community Property
Even if your business started before your marriage, any increase in its value during the marriage may be subject to division.
For example:
- Did your spouse contribute to the business in any way—financially, administratively, or emotionally?
- Did you use joint marital funds to grow or maintain the business?
- Did you work in the business during the marriage, increasing its value through your labor?
These factors could give your spouse a claim to a portion of the business’s appreciation, even if they don’t have direct ownership.
Business Valuation During Divorce
In most divorce cases involving a business, a professional business valuation is required. This determines how much the business is worth and how much of that value is considered community property.
The valuation process considers:
- Gross revenue
- Profit margins
- Market comparisons
- Business assets and debts
- Goodwill (reputation and customer loyalty)
Sometimes, spouses disagree on the valuation, and it may require expert testimony or forensic accounting. This process can be especially important if you’re trying to retain control of your business post-divorce.
Protecting Your Business in Divorce
1. Prenuptial or Postnuptial Agreements
2. Buy-Sell Agreements
3. Proper Business Structure
4. Maintain Clear Financial Boundaries
What Happens to the Business During the Divorce?
There are generally three outcomes when dividing a business during a divorce:
- Buyout – One spouse buys the other out of their share of the business.
- Co-ownership – Both spouses continue owning the business post-divorce (less common and usually requires strong boundaries and mutual trust).
- Sell the Business – The business is sold, and proceeds are split according to the property division agreement.
Buyouts are the most common resolution—especially when one spouse was the active operator of the business.
Special Considerations for Modern Families
Modern relationships often come with non-traditional income structures, co-parenting dynamics, or blended family considerations. For example:
- One partner may stay home while the other grows a business.
- Couples may have joint investments, freelance income, or digital assets tied to the business.
California courts are adapting slowly, but these realities underscore why you need a family law firm that understands the complexities of modern families and evolving definitions of contribution.
How We Can Help
At Enright Family Law, we understand that your business is more than just an asset—it’s your livelihood, your passion, and often the result of years of hard work.
Whether you’re a sole proprietor, a partner in a firm, or a startup founder, we work with you to protect your interests, value your business fairly, and negotiate outcomes that allow you to move forward.
Our team specializes in helping modern families navigate divorce with clarity, strategy, and empathy. If you’re worried about how your divorce will impact your business—or if you’re considering a prenuptial agreement to safeguard your future—we’re here to guide you every step of the way.
Let us help you protect what you’ve built. Contact Enright Family Law today.
