How To Divide Businesses & Real Estate In A California Divorce

There are two methods of dividing property in a California divorce case: In-Kind Division and Asset Distribution. Under the in-kind division method, the community property assets are divided by awarding one half to each party. For the asset distribution method, some properties are assigned to one party, and the other party receives properties of equal value. The Asset Distribution method is also called cash-out.  

A third alternative method of dividing properties is for the court to order the sale of community property and for the corresponding proceeds to be divided between the parties.  

Division of Family Business 

The division of a family business depends on several factors, such as valuation, the ability of a party to purchase the share of the other, and whether it requires special expertise to operate it.  

The family business should be awarded to either of the spouses if it is proven that either of them can operate it and have the means to buy the other’s share. If such is the case, then the business should not be sold to a third party but should be awarded to one spouse.  

The court can refuse to divide the business equally if the business requires special expertise to run and only one spouse has the ability to run the business. In such a case, the business should be awarded to the spouse with the ability to run it. However, if the nature of the business does not require special expertise in running it, then the business may be awarded to a spouse even if he or she does not have the ability to operate it yet. 

In case of a business that requires a professional license to operate, the business must be awarded to the spouse who possesses the license.   

Division of Out-of-State Real Property 

Courts are mandated to divide out-of-state real property in a way that does not change the nature of the interests held in the real property situated in the other state. So, for example, if the community estate possesses sole ownership in the real property located outside California, then the court should divide the real estate in a way that preserves the sole ownership interest over the property.  

The following may be done to divide the property if it is not possible to preserve the nature of the interests:  

  • Require the parties to execute conveyances or take other actions regarding the real property situated in the other state as necessary. 
  • Award to the party who would have been benefited by the conveyances or other actions the money value of the interest in the property that the party would have received if the conveyances had been executed or other actions are taken.  

Awarding Single Assets to One Party  

An asset of the community property can be awarded to one party alone if the economic circumstances warrant it. An example of an economic circumstance that warrants such kind of award is when the asset cannot be divided without impairment.  

Such can be applied to a family business that cannot be divided without impairment. It can also be applied to a family home used by the custodial spouse when there is no replacement available.  

A spouse’s special attachment to an asset can also be a basis for awarding an asset to one party. An example is a painting to which a party attaches special meaning.  

However, if the court sees it fit to award a major asset to one party alone, the other party will also receive compensation. It can be in the form of other assets or notes from the spouse awarded the asset.  

Liquidation to Avoid Risk 

The court has the power to order the liquidation of community assets to avoid unreasonable market or investment risks. If this is done to pay off the debts of a party, then there should be a determination of the rights of the parties or adequate protection given to the other party’s community property interest.  

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