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Protecting your small business in a divorce

California is one of the few states that still considers both income and assets within a marriage as community property. In other words, all property acquired during a marriage such as residential real estate, joint bank accounts, retirement accounts, vehicles, and even personal household furnishings are considered to belong to both parties.

In the event of a divorce, a judge in a community property state will divide these items equitably. One asset that is often overlooked while in the throes of marital bliss, but that can be heavily damaged by divorce, is a small business. Since we don't usually get married planning to get a divorce, we likely don't even think about making sure our biggest assets are protected.

As a small business owner who is planning on getting married, it is always a good idea to make sure you have the best formation for that business in order to protect it from becoming community property. Prior to the wedding date, ask yourself this question: If 50 percent of my business were taken away tomorrow, could it survive? If the answer is no, then you may want to work with an attorney who can help you draft a prenuptial agreement.

If you own a small business which was formed after your marriage, creating a legal structure which specifically identifies each parties role and ownership percentage is highly recommended. This way, there is no dispute in the event of a divorce as to who is the rightful owner. While prenuptial agreement are more widely known and accepted, postnuptial agreements are also an option for assets, such as a small family business, born within a marriage. An attorney can assist you in creating a fair property division agreement that will help you stay afloat.

Source: NFIB.com, "A Small Business Owner's Guide to Divorce," June 5, 2017

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