Community Interest in a Sole and Separate Businesses

Many clients believe that once an asset is determined to be one spouse’s separate property they are no longer entitled to any compensation related to the asset. This is not always true.

Although the business may have existed before the marriage, been a gift or inheritance during the marriage, or was purchased with traceable separate funds during the marriage, one spouse may still have a community lien on the sole and separate business or otherwise be entitled to compensation from the asset.

There are additional considerations when a spouse owns a separate business that he or she operates during the marriage. This is true because that spouses’ work on the business during the marriage is community labor. Even if a spouse is being fairly compensated by the business for their community efforts at the separate business, the community may still be entitled to compensation for a portion of the increased value of the business that is related to the community effort expended during the marriage.

A business can increase in value for a host of reasons – effort by a spouse, unique market conditions, or both. Frequently experts can quantify and attribute an increase in value that may entitle the non-owner spouse to compensation.

If a spouse is not being adequately compensated for their work on the business – i.e. taking a below market salary, not paying themselves at all, holding retained earnings in the business, etc. – the non-owner spouse may also be entitled to recoup some portion of these funds related to the community effort during the marriage. In fact, the non-owning spouse may make a claim that they have contributed to the business but not have gotten paid a fair salary or paid at all.

If you are thinking of getting divorced and you or your spouse own a separate business or businesses, you need an experienced attorney who can properly advise you about your rights.

If you would like to work with one of our experienced Attorneys, please call OWENS & PERKINS at (480) 994-8824 to schedule your free 30 minute consultation.