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Business owners who are divorcing beware

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The failure of a business owner, who is a party to a legal proceeding for the dissolution of his/her marriage, to disclose business assets and activity can lead to severe sanctions. The California Family Code requires each party to fully disclose to one another all assets, income and debt, whether it be separate or community property. Recent court interpretation of these provisions resulted in draconian sanctions to business owners who failed to provide information that identified business assets and business activity, or who failed to provide information that would allow his/her spouse to "value" the business interest.

One San Diego businessman was severely sanctioned for failing to identify several entities owned by his business. The appellate court upheld the sanctions of $250,000 plus attorneys' fees of $140,000 despite the fact that the failure to disclose resulted in no economic "injury" to the other spouse. The court stated that Family Code section 2102 requires a business owner to disclose "significant business activity" outside the ordinary course of business.

In another action at the trial court level, a business owner who failed to list a partnership interest assigned to his business was found to have "willfully" failed to disclose that partnership interest. The court awarded 100 percent of the value of the partnership interest to the owner's spouse as a sanction. That same business owner also failed to list the "value" of an interest the parties owned in a vacation home. The court ruled that the interest in that vacation home was a "partially omitted asset" and awarded the other spouse a 50 percent interest in the vacation home several years after the entry of the judgment of dissolution, which judgment had awarded the full interest in the vacation home to the business owner.

Any business owner involved in proceedings to dissolve his/her marriage, or for a legal separation, must carefully review, with a qualified family law attorney, the legal requirements of disclosure that the Family Code imposes. The courts are interpreting these statutory requirements in a manner that requires full and complete disclosure irrespective of the other spouse's knowledge of assets or transactions. The defense of "but he/she knew about that" has no merit. The failure of a business owner to fully disclose business assets, transactions and information relative to the value of a business interest can result in disastrous financial consequences both during and after divorce proceedings.

The law firm of Hargreaves & Taylor specializes in family law matters with an emphasis on representing business owners who are divorcing. The firm provides traditional litigation services, mediation and collaborative legal representation. The firm congratulates Bill Hargreaves on being named one of the "best" family lawyers in San Diego.

Submitted by Hargreaves & Taylor

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