'Economic circumstances' approach in distributing Family Owned Businesses or Medical Practice in Divorce Cases
The court does not always equally divide each piece of community property in a divorce case. An equal partition of each item of property in the community estate is rarely practical or feasible and, in some cases, may be inequitable. The court may award a community asset exclusively to one party 'on such conditions as the court deems proper to effect a substantially equal division of where economic circumstances warrant. Fam.C. § 2601This method of distribution community property often yields awarding another piece of equally valued community property to the other spouse or , if none exist, then an equalization payment. Marriage of Fink (1979) 25 C3d 877, 160 CR 516;
Marriage of Bergman (1985) 168 CA3d 742, 214 CR 661;
Marriage of Kozen (1986) 185 CA3d 1258, 230 CR 304;
Marriage of Tammen (1976) 63 CA3d 927, 930, 134 CR 161, 163]
In applying the 'economic circumstances' approach, it is necessary to make an inquiry into the nature of the property, as well as the parties' individual needs, 'emotional attachments,' business acumen, and financial positions . Marriage of Fink; Marriage of Cream (1993) 13 CA4th 81, 89-90, 16 CR2d 575, 580 .Marriage of Quay (1993) 18 CA4th 961, 972-973, 22 CR2d 537, 544-545
The economic circumstances approach is commonly used in awarding family run businesses. An award of a family-run business to one spouse is appropriate where inevitable deadlock between the divorcing spouses would result from an assignment of undivided interests therein. Marriage of Brigden (1978) 80 CA3d 380, 145 CR 716; Sometimes, only one spouse is capable of operating the business. In those situations, it is appropriate to award the business to him or her, rather than sell it off to a third party or order an in-kind division in favor of a spouse whose lack of experience could impede the business' success. This approach was applied in the following casesMarriage of Burlini (1983) 143 CA3d 65, 191 CR 541 Marriage of Smith (1978) 79 CA3d 725, 145 CR 205 Marriage of Clark (1978) 80 CA3d 417, 145 CR 602
This rule has been applied flexibly by the court though and evaluated in a case by case scenario. In situations where the non-managing spouse is equally capable of running the business, the court may award the business to the non-managing spouse. In situations where the managing spouse is about to retire, it might make better sense for the court to order a sale of the business and division of the proceeds. Marriage of Rives (1982) 140 CA3d 138, 151, 181 CR 572, 578-579
Where both parties are equally capable of operating a family business, and each seeks its award and can afford to buy out the other's share it would normally be an abuse of discretion not to adopt the asset distribution/cash-out approach, awarding it to one of the parties. Marriage of Cream (1993) 13 CA4th 81, 89-90, 16 CR2d 575, 580
A business or professional practice requiring a license, such as a medical practice, legal practice, or accounting practice, must be awarded to the spouse who holds the license with an equalizing award to the other to offset the community interest in the business. Marriage of Lopez (1974) 38 CA3d 93, 105, 113 CR 58, 65 Marriage of Morrison (1978) 20 C3d 437, 453, 143 CR 139, 150. If you have substantial community assets or have a family owned businesses and are planning to file a divorce, it is best to obtain the representation of an experienced attorney to assist you in the process.
Please note that this article is not legal advice and is not intended as legal advice. The article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article does not create any attorney-client relationship between you and the Law Offices of Kenneth U. Reyes, P.C. This article is not a solicitation.
Attorney Kenneth Ursua Reyes was President of the Philippine American Bar Association for 2005. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. Mr. Reyes is a Certified Family Law Specialist. He is a graduate of Southwestern University Law School in Los Angeles and California State University, San Bernardino School of Business Administration. He has extensive CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, P.C. is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail firstname.lastname@example.org; visit at www.kenreyeslaw.com