Divorce for Business Owners and Engineers

For people in certain types of professions, certain issues are likely to arise in a marital dissolution that require special attention. Divorce for business owners and engineers, for example, can be more complex than for many other people due to the income levels and business assets of the parties. If you or your spouse own a business or are an engineer, you need competent advice regarding the challenges you may face in correctly assessing your financial status in divorce. Our San Diego divorce attorneys have over 50 years of combined experience assisting clients with a wide variety of family law matters, and we can help you understand your options.

All community property—property acquired during marriage—is subject to division in divorce. A preliminary issue for business owners is determining whether all or a portion of a business constitutes community property. That is, in some cases, a spouse may own and operate a business prior to marriage. Assets owned by either spouse prior to marriage is usually separate property; however, if the business grows or expands during marriage, or marital funds are invested in the business, a portion of it may constitute community property.

The next key issue how to value the business to find out what each party’s community share is worth. Usually, valuation is necessary to allow one spouse to “buy out” the other spouse—often by allocating to the other spouse other assets of equal value—so that he or she can continue running the business after divorce.

There are numerous methods of valuing an operating business, and valuation is most often determined by an expert. The methodology used will depend upon several factors, including the type of business. For example, a methodology used for a business that has a lot of physical assets will not be the same used for a personal service business.

However, there are many options and it is not always clear which method should be used, particularly since different methodologies can yield significantly varying results. Thus, it is not uncommon for divorcing parties to bring in their own “experts” to buttress whichever valuation serves their interests: if they sell the business and split the proceeds, both will want a methodology that yields a high valuation; but if one spouse must buy out the other spouse, each will advocate for whichever method yields the result more favorable to them.

Not surprisingly, determining both ownership and valuation can be very contentious, and having an experienced divorce lawyer on your side can be critical if you are in this situation.

One way technology companies attract and retain engineers in California’s competitive technology market is by offering attractive compensation packages, not only with high salaries and expansive benefits, but by offering stock options or other incentives.

In divorce, one important issue is how to evaluate these incentives in terms of characterizing them as separate or community property and of assessing their value for purposes of dividing community assets.

For example, suppose an engineer accepts a job prior to marriage that offers stock options that will vest over a period of years. Then the engineer marries. He or she works for a time, exercises some options, is offered more stock options with a promotion, but then files for divorce before some options vest or before all the vested options are exercised. What stock, if any, is subject to division as community property? Was the original option part of a “signing bonus” that is separate property even when exercised? Are options granted during marriage but that have not yet vested—and may never vest—community property? If an option is itself community property, how can it be valued if it has not been exercised?

These questions, and more, will need to be answered—and there are many ways to answer them. As with business ownership, the parties have a strong financial incentive to advocate for whichever answers accrue to their own benefit. Divorce for business owners and engineers is often much more complex than in other cases.

Division of community assets can become very complicated when one or both spouses own a business or have any other assets, such as stock options, for which it is difficult to assess valuation. Call Doppelt and Forney, APLC for a free in-person or virtual consultation at 800.769-4748 or contact us online if you have a question for our lawyers regarding divorce for business owners and engineers. We proudly serve clients in San Diego and the surrounding communities, including Chula Vista, Coronado, Carlsbad, Encinitas, La Jolla, Oceanside, Ramona, San Marcos, and Vista.