I am frequently asked by my professional clients (i.e. attorneys, physicians, accountants, etc.) whether their professional practices are fair game in divorce court for their soon-to-be-ex spouses. The answer to that question (not surprisingly) is a resounding “maybe.” California community property law starts with the presumption that anything that a married couple gets their hands on during the marriage is labeled as community property and is owned equally by both spouses. As with most things, there are exceptions to this presumption. And when we are evaluating a professional practice in a divorce, we have to look at a few factors that may help us answer the question of the appropriate label (community property or separate property) for that practice. Generally speaking, if the owner of the practice works really hard on growing the practice during the marriage, puts in extra hours to generate extra income, invests earnings in the practice to assist in its development, or otherwise takes a direct hand in managing the development of the practice, those efforts may be deemed by the Family Law court as contributing community property to the growth of the business. Any efforts that either spouse makes during the marriage, and any income resulting from those efforts, are presumptively community property, after all. Even if the practice was opened before the couple was married (and is thus “separate property”), community property efforts during marriage may create a community property interest that must be evaluated in the divorce case.
This is not to say that every professional practice will have a community property component. The analysis of whether any community property exists is always fact-sensitive, and the conclusions we draw will depend upon the circumstances in each particular case. We are fluent with “accountant-speak”, and we frequently work with the forensic accountants that assist us in evaluating the proper division of professional practices in divorce cases. This evaluation can be complex, and we encourage you to get in touch with us if you have further questions or concerns regarding your particular practice.