Legal Question in Business Law in California

Re: What is the effect of jointly owned corp. in a divorce?

The business is just another asset to be divided, either by agreement of the parties or by court order, along with the residence, bank accounts, cars, silverware, etc.

Similarly, the liability represented by the personal guarantee goes into the balance, where the objective of the law is to divide assets and liabilities equally, so that each spouse winds up with 1/2 of the net assets, after deducting liabilities assigned to that spouse.

Where things get really tough is in figuring out the value of businesses, and that includes evaluating the burden of liability presented by a personal guarantee. If the divorcing spouses cannot agree (or even if they can), experts are usually required to produce valuations that meet the special requirements of community property law.

You are fortunate that things are amicable now and that you both understand that rocking the boat could cause the development project to capsize. This is important because you probably don't have firm commitments for all the financing you'll need and lenders may be spooked by perceived difficulties between co-borrowers, especially with credit availability and interest rates perhaps headed in an unfavorable direction.

I would suggest having a family-law attorney with above-average experience look into the possibility of drawing up a contract between you, covering your current wishes with respect to the business and perhaps containing agreements with respect to postponing any divorce filing, resolving date of separation issues if any, and interim custody and support issues.

Such contracts used to be void as against public policy, but I believe they are common now.

In any event, as you move away from being marital partners and become more just ordinary business partners (or, more accurately, co-shareholders), the value of a written agreement becomes greater.

Re: What is the effect of jointly owned corp. in a divorce?

Divorce would quite likely affect the financing potential for the project. You should consult with an attorney to work out a formal separation and property settlement agreement that you 'hold' until the project is done.