Navigating Noncompete Agreements in Business Owner Divorces in California

If you’re a business owner facing a divorce, there are plenty of financial concerns to deal with, but protecting your business is key. If you started the business and poured your blood, sweat, and tears into it over the course of your marriage, you are likely to maintain ownership post-divorce, but you’ll need to buy out the portion that belongs to your spouse and will need to address the matter of protecting proprietary information from your competitors.

To help ensure that information related  to your business’s competitive edge doesn’t make it into the wrong hands, putting a noncompete agreement into effect could be the best path forward, and an experienced Orange County property division lawyer can help you with that.

Property Division in a California Divorce

The State of California treats all the assets that a couple comes to own while they’re married as community property. This means that everything you, your spouse, or both of you together acquired during your marriage belongs to both of you and must be split between you equally in the event of divorce.

Separate Assets

Anything that either of you owned prior to and kept separate throughout your marriage is considered community property, but the intermingling of marital and separate assets can change that. Further, the amount an asset grows in value during a marriage is treated as community property.

Your Business

If you owned your business prior to your marriage, it’s a separate asset, but your spouse is very likely to have at least some ownership in the enterprise. And if you started the business while you were married, it’s community property, and you must determine a means of splitting its value.

If you and your spouse ran the business together or you were both involved in its management, they are more likely to either have a close understanding of proprietary information that your competitors would be interested in acquiring or have a desire to branch out by competing with you directly. These are both excellent reasons for negotiating a noncompete agreement with your soon-to-be ex in your impending divorce.

What a Noncompete Agreement Can Accomplish in a California Divorce

California favors every individual’s right to freely engage in their profession or trade of choice. Any restrictions on this freedom must be predicated on evidence that the limitations imposed are both reasonable and necessary to preserve the value of the business that was awarded to the other party in divorce. In other words, any noncompete agreement you implement must be based on preserving the value of your business and can’t include any unreasonable requirements.

Negotiating a Noncompete Agreement with Your Spouse

It is possible to negotiate – or to obtain through a court order – a noncompete agreement with your divorcing spouse that prevents them from sharing business information that could diminish your competitive edge or from starting a business using closely held information that competes with yours. The scope of the noncompete agreement, however, must be limited to what’s allowed by law. For example, you can’t limit your spouse’s ability to work in a specific industry for an indefinite period.

Enforceability

The noncompete clause itself must be part of a contract that is enforceable to begin with. If any other provision included in the contract is unenforceable, the noncompete clause will follow suit.

Time Limitations

There is no specific time limitation specified for noncompete agreements that are reached in California divorce case, but the timeframe should be within the realm of reasonable.

Geographical Limitations

For a noncompete to be enforceable in California, it should be confined to the specific geographical area in which the business in question is located or the geographical area where the business was conducted.

Issues Addressed

The kinds of issues that your noncompete agreement should address in order to enhance its applicability and support its enforceability include all the following:

• The nature of the business that your ex is prohibited from starting
• How long the noncompete agreement will be in effect
• The geographical region that the noncompete applies to
• The compensation your ex will receive for entering the noncompete agreement
• The penalties that can be imposed for any violations of the noncompete terms by your ex
• The requirements regarding the sale of the business, such as if there are any restrictions that may apply and whether your former spouse has first purchase rights

An enforceable noncompete agreement can fortify the success of your business post-divorce, and having the professional legal representation of a focused property division attorney can help guide you seamlessly through the process.

In re Marriage of Gréaux

In the California Gréaux case, an appellate court ruled on the matter of noncompete agreements in divorce – finding that, as long as the agreement is sufficiently limited in scope, inclusion is allowed. While the state’s Business and Professions Code favors open competition, there are exceptions in place for the dissolution of a business partnership and for the sale of a business.

The appellate court in Gréaux determined that family courts in California have broad authority to address the division of community property in divorce. Further, it found that preservation of an asset’s value through a noncompete order is in keeping with the noncompete clauses that state law allows in business sale transactions.

An Experienced Orange County Property Division Attorney Is Standing By to Help

The savvy Orange County property division lawyers at Minyard Morris appreciate the important role that a binding noncompete agreement can play in your ability to keep your business moving steadily forward, and we’ll spare no effort in our quest to help.

Allowing your divorcing spouse to walk away with an unfair business advantage is too serious a matter not to pursue a strong noncompete order that helps protect the value of your business and your ability to continue running it successfully. Learn more by reaching out and contacting or calling us at 949-724-1111 today.