Dividing property is always difficult during a California divorce; when a small business is involved, the stakes are even higher. Couples who generate income from a business during their marriage must comply with California community property laws.

Community property in California is defined as property, income or assets that are acquired while spouses live together. Unless a prenuptial agreement exists, community property is divided equally among separating spouses in California. In other words, any business considered community property will be owned 50 percent by one spouse and 50 percent by the other.

The valuation of the business is essential during a California divorce. California courts will accept any legitimate evidence of the value of a shared business when dividing a community estate. Unfortunately, even small businesses are valued according to multiple factors.

Perhaps the most difficult aspect of valuing business property is the concept of "goodwill" in California. Basically, goodwill refers to the potential for profit of any business entity. Since this part of the property is intangible, it must be valued based on supposition and precedent. Business goodwill is used in valuing a business not just for divorce cases, but also if the business is sold to a buyer.

A business does not carry more weight than an investment or a residential property in California. If one spouse wants to take over the business, for example, the other might get the residence, the cars, the stock portfolio and other assets, so long as both sides are equal. During a California divorce, the courts will examine all evidence of community property and make decisions based on the value of each asset. California courts will consider the value of the business as of the date on which a couple separates, though this can vary depending on circumstances.

This is why it is a good idea for family business owners in California to draw up agreements in the case of separation. It might not be a comfortable topic for couples, but it does reduce some of the complications should a divorce take place. An attorney can help spouses draw up an agreement that will cover dispensation of community property.