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FAQS: How are Family Non-Profits Divided in a Divorce?

Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.

When a couple is getting divorced and they have significant assets, sometimes there is more than just personal or business assets at stake. A couple may own a private non-profit, have a stake in a private family foundation or otherwise divert their time, energy and a significant portion of their wealth to a charitable foundation or charitable fund.

When a couple is dividing their assets in a divorce, decision-making that revolves around what to do about charitable endeavors can be one of the most difficult prospects to face. The Gates Foundation is a good example of a non-profit that was meaningful to both spouses during their married lives together, so the decision about how to go forward wasn’t taken lightly. The Gates agreed to remain co-chairs of the Gates Foundation together, but with a contingency plan so they could go their separate ways if necessary. For every divorce, the solutions will be different.

The following are some of the main questions spouses may have to confront when dividing a non-profit in a divorce:

Is a Non-Profit Marital Property in a California Divorce?

In a California divorce, gifts to charity, including funding a non-profit, are not considered to be part of the community property.

They are deemed to be an irrevocable gift to the foundation that can’t be included as part of the marital estate. That being said, if a non-profit was funded by one spouse with marital property that was part of the community property, the other spouse may want to be reimbursed for a portion of marital property that was used to fund the non-profit.

This may happen if one spouse plays a greater role in the non-profit, for example if it is an inherited family foundation. There can be individual circumstances where spouses may not be completely unified in their decision to fund the non-profit with marital property.

A skilled divorce mediator can work with divorcing spouses to determine the circumstances of their involvement in the non-profit and what portion of marital property was used to fund the non-profit.

What Happens to a Non-Profit After You Divorce?

Some divorcing spouses make the decision to wind down a non-profit after divorce.

If the non-profit was a project solely between you and your spouse this is easier. Some divorcing spouses choose to divide the non-profit or divert one spouse’s funds into a donor advised fund.

If you choose to wind down the non-profit, you should be cognizant of the filing requirements and tax impacts of doing so

What Happens if the Non-Profit Is A Family Foundation?

If the non-profit was a family foundation or a private organization with other members on the board, the decision about whether the non-profit remains a going concern isn’t a decision between you and your spouse alone. Instead the decision becomes about what kind of involvement you and your spouse will have in the non-profit after you divorce.

You may need to comply with existing operating rules about who can be on the board of the non-profit. You can also make an agreement together that may be acceptable to other members of the board. In the case of the Gates Foundation, Bill and Melinda Gates agreed to be co-chairs with a contingency plan. Bill Gates agreed to an effective buyout in which he would reimburse Melinda Gates with assets to continue her charitable mission in a separate foundation if the co-chair agreement was to be dissolved. There are many different solutions which can be tailored to each individual situation.

Do I Owe My Spouse Anything From the Non-Profit We Shared Together?

In general you don’t owe your spouse any money from a non-profit you shared together because money used to fund the non-profit is no longer marital property.

However as in the case of Bill and Melinda Gates, individual couples may want to support each other’s ongoing charitable missions if they are no longer working together. Keep in mind that if your spouse is stepping away from the non-profit there may be tax reimbursement issues due to any potential tax refunds that result from the charitable deduction.

One of the key things to remember about dividing your non-profit during your divorce is that a divorce court won’t be able to order you and your spouse to make decisions about a non-profit if you can’t agree what to do with it. For most purposes the non-profit is outside the marital estate.

When you work with highly qualified San Diego Divorce mediators you can decide what to do about your non-profit and these decisions can be recorded as part of your marital settlement agreement.

Our divorce mediators are highly qualified financial and legal experts. We are especially focused on ensuring a divorce is fully legally compliant even if it takes place outside the courts, and we handle all aspects of the documentation process and more. Because your non-profit is not part of your marital property, it’s all the more important that your marital settlement agreement is drafted extremely carefully.

There are many creative solutions for what to do when a divorcing couple is involved in a non profit that is meaningful to them. Our mediators have offices in Silicon Valley, Berkeley and San Diego, CA. We are also available for remote mediations depending on convenience and comfort level. Please contact us to learn more about our West Coast mediation services.