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Am I Entitled to a Percentage of Profits My Partners Makes After a California Divorce?

One of the more challenging aspects of a California divorce is when one spouse has an active ownership interest in a business, whether as a sole proprietor or a partner. Generally, divorcing spouses in California will split their “community property” – meaning the property that they earned or acquired with earnings during the marriage – in a 50/50 manner. This is relatively straightforward when it comes to savings accounts funded with such earnings, as they can be split down the middle. Things get more challenging with large property assets such as houses that are purchased with such funds, as a house obviously cannot literally be split down the middle (in such cases, one spouse is usually required to offset the community property value of the house to the other spouse, such as through reducing their interest in other assets). But when a family business that continues to generate profits after the marriage, based in least on part on efforts made by one spouse during the marriage, things have the potential to get quite challenging, but an experienced California family law attorney can guide you through this process.

How Interest in a Business is Divided in a California Divorce

Again, in awarding one spouse a property interest in the ongoing profits from the other spouse’s business, a California court is going to look at the source of those ongoing profits: do they derive from efforts and funds of the owner-spouse that either predated the marriage (or funds provided by gift during the marriage to that spouse) or came after the date of separation (the date that at least one spouse made his or her intent to end the marriage)? Or do the profits derive from funds earned during the marriage and/or efforts made by the owner-spouse during the time of the marriage?

If, for example, the owner-spouse had started the business before the marriage began and put very little effort into the business during the marriage (e.g. was a limited partner relying on the efforts of others to actually manage and run the business), the other spouse would likely have only a limited interest (or no interest) in the profits of the business. That said, any such income would absolutely be factored into a spousal support award, but spousal support is really a whole separate question from the one of whether a non-owner-spouse can take a property interest in the other’s profits.

On the other hand, if the business was started during the marriage with funds earned during the marriage, and/or the business was built on the labor of the owner-spouse during the marriage, then a court would look at that and determine that the business is, at least in part, community property, and thus the other spouse would indeed have an ownership interest. Does this mean that the non-owner-spouse gets 50% of all profits of that business forever? No, especially when those profits are at least in part generated based on the ongoing efforts of the owner-spouse after the date of separation.

Of course, in many cases, the ongoing profits of a family business are going to be generated based on a mixture of both of the above: efforts and funds that can be sourced to the marriage, and efforts and funds from either before the marriage or after the date of separation. Again, this can be a complex legal and accounting issue, but a California family law attorney can guide you through the entire process to reach a just outcome.

Get Answers to Your California Divorce Questions

At Kearney | Baker in Pasadena, we represent spouses through all aspects of the dissolution/termination process, including seeking or responding to requests for an interest in one spouse’s business. To schedule a consultation regarding any questions about family law in California, contact one of the family law attorneys at Kearney | Baker today at 626-768-2945.

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