Legal Question in Family Law in California

First off, it makes absolutely no difference if the company is an S or C corp. An asset is an asset is an asset. It may be community property, quasi-community property, or separate property at the time of a divorce, but it's still just an asset.

As for what happens to that asset if you marry and later divorce, that is a LOT more complicated and will depend on what happens with the company and why during the marriage. It is clearly separate property at the time marriage. Unless there is an affirmative transfer from separate property status to community property status during the marriage, it would almost certainly not become full blown community property. It could, however, become quasi-community property, meaning the marital community might acquire an interest in it that would have to be bought out or otherwise accounted for in a divorce.

That happens because the fruits of work during the marriage belong to the community. So if you are a salary earner and you put away savings from your work during the marriage, that is community property, as is any return you make on investing it. Passive asset growth is not, however, community property. So if you own 100 shares of Widget Corp before you are married and they double in price over the term of the marriage, that appreciation remains separate property.

As you can imagine, that gets kind of complicated pretty quickly when your business is your job and it increases in value due to your labors as you grow your business. How much is appreciation of the asset, and how much is "sweat equity?" That is the stuff that divorce trials are made of. A good fair pre-nup that agrees in advance how the business will be treated and valued in the event of a divorce is a really good idea in such situations.

I agree with Mr. McCormick. Right now, the shares in the company are separate property. Whether or not the community acquires an interest during the marriage depends on what happens during the marriage.