Legal Question in Business Law in California

if i own my own business while single and then get married while i still own my own business does my new husband automatically become a legal partner in my business?


Asked on 9/11/09, 3:08 pm

2 Answers from Attorneys

No, but over time he will most likely acquire some community property interest in it unless steps are taken to avoid that, ideally starting with a pre-nuptual agreement followed by maintenance of it's separate property status over the course of the marriage.

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Answered on 9/11/09, 3:37 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Not in the normal sense of the term "partner," meaning a person who has associated with one or more other persons to carry on as co-owners a business for profit. However, the marital community will probably acquire a community-property interest over time. Having a financial interest in a business is not the same as being a partner in it - the community would only have a financial stake, not a right to vote or co-manage, as would a true partner.

The reason why the community acquires an interest is because the fruits of the labors of spouses are deemed to be a community asset. If the value of your business were to grow from, say, $1 million on the date you married to $1.5 million two years later, a family law court would look at the $500,000 increase and inquire whether the increase in value were the product of your management skills, on the one hand, or the performance of invested capital, on the other. If the growth were entirely due to your skills and efforts, the community interest would be $500,000, and in the event of a divorce, your share would be $1,250,000 (your separate-property interest plus your half of the community interest. If the court found that your participation in running the business had no role (because you were not active in the business and it was run by a hired gun), there would be no community interest and you would get the whole $1,500,000, or the whole company, in a divorce property settlement.

There are other factors as well. The community can acquire an interest through commingling of funds, easily avoided by keeping separate accounts and tracking business cash flows carefully and separately. If the business in unincorporated, so that its liabilities are also your personal liabilities, the community will probably be liable for them under Family Code section 910(a).

Note that marriage is considered a fiduciary relationship with respect to the spouses' financial affairs, and the law expects spouses to be open, candid, honest and responsible toward one another in dealing with business transactions, property and liabilities. This does not mean you have to share every detail of everday business-as-usual transactions of your separately-owned-and-managed business, but you kinda have to keep him posted on major developments and long-term trends.

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Answered on 9/11/09, 4:11 pm


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