When it comes to the property division aspect of divorce, California couples are often shocked at the complexity of dividing assets. While to many, property division may seem simple on the surface, when one is considering only dividing marital assets such as the house, the car and the summer home. Yet, it can actually be quite complicated, as there are sometimes an infinite number of items to potentially divide.
A recent California divorce case highlights such complexities. A California judge ordered that a spouse not work in the same business as her husband, anywhere, for five years post-divorce. The decision stems from the property division disagreement between the couple surrounding their jointly-owned company. Ultimately, the court determined that the husband should get the company in the divorce because he was more experienced to run it. However, the court went one step further and also ordered the other spouse to refrain from competing with the business.
While California law does permit a judge to preclude another party from competing in a certain business, the question in many cases is whether the particular preclusion is reasonable in scope. On appeal, the higher court did not believe the non-compete order was in fact reasonable. The court specifically took issue with the fact that the spouse was not permitted to operate a similar business anywhere. The case has now been sent back to the lower court to be re-evaluated to consider the non-compete order in relation to the geographic area where the husband operates.
California is a community property state. In its most general sense, this means that marital property is divided evenly among separating spouses upon divorce. In a case where one spouse is awarded a jointly owned business, the other spouse is likely awarded other marital assets to create an even distribution. However, when the ability to make an income is divided as property as well, the courts must make very careful decisions. The impact of non-compete clauses can be substantial and the state of California does not look favorably on rulings that prohibit the growth of business.
Source: Metropolitan News-Enterprise, “C.A. throws out non-compete order in divorce proceeding,” Feb. 18, 2014