If you own a business and your marriage is ending, the stakes go beyond dividing furniture or bank accounts. California’s community property laws can put your company and everything you’ve built on the table.
How California classifies business ownership
California treats most assets acquired during a marriage as community property, which means both spouses hold an equal interest. Businesses are no exception.
Under California Family Code § 770, a business you owned before marriage is generally separate property. You keep it. But growth that occurred during the marriage may still be divisible, especially if marital funds or your spouse’s labor contributed to that growth.
When your spouse may have a claim
Courts look at more than the business’s origin. They examine what happened to it throughout the marriage. Your spouse may have a claim to part of the business value if any of the following apply:
- Marital funds invested: Community income was used to grow or sustain the business.
- Spousal contribution: Your spouse worked in the business or supported operations directly.
- Commingled finances: Personal and business funds were mixed over time.
Each of these factors can shift a portion of the business from separate to community property. Even a business you started alone can have a divisible component.
How businesses are valued
Courts don’t divide businesses by guessing. A formal valuation determines what the business is actually worth before any division takes place. California courts typically rely on one of two methods to assess value:
- Pereira method: Applied when the owner’s personal effort drove business growth, more value stays as separate property.
- Van Camp method: Used when external factors like capital or employees drove growth, more value may be treated as community property.
A forensic accountant often leads this process. Each spouse may hire their own expert or a court may appoint a neutral evaluator.
You may talk with an attorney about your situation
Business division is one of the most complex areas of California divorce law. The attorneys at O’Brien Family Law help clients understand their rights and options in property division cases. Speaking with a lawyer may clarify how these rules apply to your specific business and circumstances.
