Legal Question in Business Law in California

Re: responsibility for husbands business?

First of all, I guess, we need to talk about the nature of this business. If it is incorporated, it has an existence all of its own, separate from the stockholders, and is liable for its own debts. If the corporation has been properly run as a true separate entity, there cannot be any piercing of the corporate veil and the owners cannot be made liable on an "alter ego" theory. If the corporate business is unable to pay its debts, your sister may want to bail it out as a practical matter, but she doesn't have to. The same reasoning would apply to an LLC.

If the business is a sole proprietorship, keep in mind that California is a community-property state. Community-property law doesn't address the liability-for-debts question so much from a who-is-liable standpoint as from a what-property-is-liable point of view. The basic principle is that community property is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt. (Family Code section 910).

However, the separate property of a married person is not liable for a debt incurred by the person's spouse before or during marriage. (Family Code section 913(b)(1). Both of these rules are subject to certain statutory exceptions.

Property that results from a couple's earnings from employment during marriage will be community property, as will money and other property that cannot clearly be traced to a separate-property origin. Separate property is whatever a spouse owned prior to the marriage, plus income from that property, and gifts and inheritances and any property "transmuted" into separate property by express agreement of the other spouse.

I'd suggest re-asking the question on LawGuru, including a few basic facts about the business, e.g. whether it was incorporated or not; whether it has employees and if so whether they are capable of carrying on its management; whether the business is profitable and warrants continued operation or whether it was unprofitable or very small scale and ought to be (or must be) shut down. If it is a large and active business with responsibilities to suppliers, customers, employees, etc. you sister should seek advice from a local attorney, probably one practicing in the areas of family law or conservatorships, for immediate advice on how to handle the business affairs and keep the business functioning until her husband is sufficiently recovered.