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Buying out a former spouse can protect a family business

Most Californians understand that when it comes to divorce proceedings, the state uses the concept of community property. This means all property is split equally between the spouses. Division is fairly simple, but complications can arise if the divorcing spouses are partners in a family-owned business. This is not an insignificant problem given that approximately 3.7 million businesses nationwide are family owned, according to the U.S. Census Bureau.

In most cases, both the extent of a spouse's involvement in the business and the type of business determines whether the business will survive a divorce. For this reason, couples should be aware of their relative positions and roles before laying claim to a family business.

For example, if one spouse is a physician and the other spouse looks after the administration of the clinic, the physician may choose to buy out the person's spouse and hire a person to administer the clinic's business. However, if both spouses are physicians with equal shares in the clinic, then buying out may not be an agreeable option, and the business may well have to be split in half.

Another effective way to safeguard a business from property division during divorce is a prenuptial agreement. If, however, a couple does not establish a prenuptial agreement before they married or if the business was formed after their marriage, then couples can establish a postnuptial agreement that details how the business will be split if they divorce.

As a last resort, a divorcing couple can also choose to sell off an entire business and then split the money, but that should be the last resort and avoided if at all possible especially if the business is robust. This particular issue highlights how property division can become complicated. A lawyer's advice is almost always helpful for divorcing couples.

Source: CBS News, "Who holds onto the family business when couples divorce?," S. Z. Berg, Feb. 10, 2015

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John T. Chamberlin, Attorney at Law
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