Community Property Interest in Business

The recent case of Rueschenberg v. Rueschenberg, 1 CA-CV 07-0300, discused the community property element of one spouse's business interest. The case held:

"In essence, our community property laws transform the community into an equity partner with the sole and separate-property owning spouse to the extent the community's efforts have generated net earnings, increased the value, or otherwise increased the net worth and/or market value of the company. ... The community's share is not eliminated just because the laboring spouse has been paid a fair compensation along the way."

Thus, a spouse in a business now has a stronger claim that even she worked in her doctor, dentist or lawyer husband's office and received compensation for that work, she also has a community property interest in the business.

This case provides the opportunity to take a number of different positions as to the quantity and quality of the business owner's interest and as to the adverse affect on value of the interest because of the uncertainty of the extent of ownership or lack of ownership.

In short, just because the business owner's Will or Trust gives 100% of the business to someone other than the spouse does not mean that the spouse is left out. The spouse needs to find a lawyer and assert a claim for the community property interest. Hint -- this does not happen automatically. The spouse needs to see an aggressive probate or family law litigation attorney.

I hope this information is helpful. Paul Deloughery
(You can contact me directly by email at paul@delougherylaw.com or phone at 602-443-4888. For more information, visit www.delougherylaw.com)

The information in this blog is general in nature and is not intended to address any particular situation.