Legal Question in Business Law in California

Living in California, you need to keep the property as "separate" property, and can do that either through an agreement with your current/future spouse (pre- or post-nuptual agreement), or by purchasing the business using assets that are already "separate" property (but there's issues with you using your community property asset -- your work -- to increase the value of the business. You really need to consult a lawyer to help you navigate these issues through proper documentation. You can contact me directly for help.

The other attorney is right. You need to consider both the initial purchase and the future value increases. These are not self-help issues. Consult with an attorney in your area for specifics.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

I agree with the prior answers, and would add a couple of thoughts. First, the issues raised by your question would perhaps best be answered, and advice given, by an attorney who specializes in family law (rather than business law). Next, a written agreement between the spouses can be quite effective in preventing or eliminating a community-property interest, but getting a really tough, effective agreement in place, especially a post-nuptial, can be a further strain on an already shaky relationship. Third, the extent to which the community derives any interest in the business may depend (absent an agreement) on the extent to which future increases in its value result from the services rendered to the business by the spouse, as opposed to being the result of capital (e.g., patents the business owns, appreciation of its real estate, etc.). Finally, you didn't say whether the acquired business will be a proprietorship or a separate entity such as an LLC or corporation. It may be somewhat easier to keep a separate entity from developing a community interest because its assets and liabilities are less likely to become commingled with the couple's personal affairs.

The other attorneys are correct, you need to consult with a family law attorney, not a business law attorney. The big problem is not structuring the company; it's what happens after. When you own a small business, even if you set it up as a corporation or LLC and capitalize it entirely with separate property (whether converted by agreement, or obtained from gift, inheritance, or assets acquired before marriage) all you do is get the bare bones of the business as a separate asset. You then go to work making the business a success, and in order to do so you necessarily are putting the value of your work into the business as well as any income you pay yourself. The value of the work you put into the business that grows the value of the business is the same as community income that you might put into any other investment. That creates a community interest in your business. There are ways to protect from that, but not without your spouse's consent after consultation with independent counsel.

You would basically need a pre-nuptial or post-nuptial agreement. I agree with the other responses, and you will need to consult with a family law attorney.