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Things To Know When Dividing Business During a Divorce

In part, this is due to court judgments that have stayed rather consistent in their treatment of how property is divided between the couple once a divorce has been finalized

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Things To Know When Dividing Business During a Divorce

In part, this is due to court judgments that have stayed rather consistent in their treatment of how property is divided between the couple once a divorce has been finalized. However, what about the family's business? It was a difficult decision to make. Is it necessary to distribute profits, shares in the company's authorized capital, or other property produced from the business's earnings to shareholders?

As a first and primary consideration, the way in which these economic processes are done has an impact on the responses to these questions. Companies with limited liability and registered natural persons-entrepreneurs are the most popular types of companies, accounting for more than half of all enterprises. Due to the difficulties of dividing a business into a divorce and property people tend to search for online divorce California to speed up the procedure and not to deal with all the papers.


Individuals in the modern day are already accustomed to conducting business through legal entities, and this tendency is anticipated to continue. The division of the assets of a limited liability company (LLC) created by one of the spouses is a particularly difficult matter to resolve in the event of divorce. There is a contradiction between sustaining the profitability of the firm and protecting the personal advantage of each spouse in this situation.

As a result, the courts are now overflowing with lawsuits over a husband and wife's rights to the limited liability company's permitted equity capital (hence referred to as corporate rights). Given that both spouses are shareholders in businesses, we cannot claim that they have equal access to the courts if they need to defend their property interests in a divorce or other legal proceeding.


According to the courts, the practice of settling disputes over the distribution of corporate rights is confined to the following position: "half of the company's earnings." The courts have taken this approach, which allows a person who is not a member of the LLC to file claims for reimbursement of the value of the common property that was contributed to the authorized capital of the LLC or for recovery of dividends paid to the LLC in his favor by a spouse who is not a member of the LLC (member of the LLC).

It goes without saying that this is beneficial to society as a whole. As a result, when one spouse uses court-approved measures of protection against the other, the other spouse is frequently forced to "jump ship." When a company's common property is divided, the permitted capital is typically just a tenth or a hundredth of what the company's common property is truly worth.

Consider the following scenario: a limited liability corporation was founded ten years ago with an authorized capital investment of $10,000 and its assets were valued at $10 million when it came time to split the estate between the surviving members. A little payment might be "redeemed" by the member of the company by providing the other spouse half of the value of the joint property that has been supplied as compensation.

When it comes to recovering the divorce 12 dividends that the business has given out, those who aren't members of the corporation are subjected to a comparable level of injustice.

  • The chances of securing a fair settlement for the other spouse are substantially lowered, to begin with, because the cash (dividends paid) must be kept in a business member's bank account throughout the legal proceedings.
  • Second, it is well-known that dividends are the exception rather than the rule in the business world, and that dividends are paid only in exceptional circumstances.

Does this position of the courts comply with current legislation?

The answer to this question is an emphatic no. As of right now, there is no specific regulation of the distribution of company rights in the legal framework. There is little doubt, however, that under the current provisions of the Civil and Family Code, a spouse's joint property may contain corporate rights that are transferable to the other spouse.

Contrary to popular belief, corporate rights can be divided between husband and wife in kind, just like any other jointly owned property, despite the fact that the courts do not recognize this.

Is litigation so hopeless for someone who is not a member of society?

Of course not. A divorce gives the other spouse the legal right to acquire ownership of his or her part of the company's interests if the marriage has ended in divorce.

In a few rare instances, courts have demonstrated a thorough understanding of the nature of corporate rights and have determined the validity of corporate rights in the context of joint family ownership. This is referred to as "judicial practice."

As a result of the "corporate reform" law, anybody who acquires ownership of corporate rights in the order of their division can become a company member, regardless of whether or not the other participants choose to be included in the business.

This means that the spouse who was not a member of the firm can now really execute the court's ruling in order to achieve ownership of a share in the company's authorized capital in the order in which the shares were split, as opposed to the other way around.

Isn't it better to agree in advance?

In situations when both parties have a chance to prevail in court, there are additional concerns to consider that many people do not consider. Long legal procedures including active participation by the parties may significantly disrupt business operations for the firm and, as a result, may result in a significant decrease in the firm's true market value following the court's decision.

While this is true, it makes little difference who wins the lawsuit because all parties lose their assets as a result of the outcome. For this reason, I urge business owners to think about asset protection ahead of time in order to minimize asset depreciation while settling a conflict over the partition of common property. Entering into a legally enforceable marriage contract might help to protect your relationship.

A member who is forced to quit the business can choose to establish a regime of private property for corporate rights that are possessed by one or more members, as well as to establish a clear process for dividing corporate assets or to assume responsibility for compensating them. Using this strategy, an active company member can preserve his firm's value from depreciation throughout the process of division, while also protecting his family's property interests in the process of division.

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