When one or both of the parties in a North County or Carlsbad divorce own a business or professional practice (or an interest therein) the “community” has a monetary interest which must be equitably divided between the parties. How is the value of a business or professional practice calculated in a North County or Carlsbad divorce? How can the attorneys at Burke & Domercq help to protect the ongoing interests and operations of the business, while offsetting the community’s interest in that business? Why is it important to have an experienced and seasoned attorney if you or your former spouse owns a business or professional practice?
The impact of divorce upon business or professional practice ownership is profound. Establishing a fair valuation of the actual market value of the ownership interest including the impact of Goodwill is absolutely essential to the ultimate division of community property. In our experience, the only issue in a divorce that is more contentious than the valuation of a business is the disposition of child custody, parenting time and support.
There are several strategies which help to determine how the value of a business or professional practice to be calculated in a divorce. Generally speaking, valuation is a combination of the “fair market value” of the business interest and the positive or negative impact of Goodwill.
The fair market value is generally defined as the price at which property would change hands given the presence of a willing buyer and a willing seller without any pressure to buy or sell, and where both parties have sufficient expertise and knowledge relating to the business at hand. Goodwill is essentially the unique and proprietary impact a specific individual has upon the continued success of the business going forward.
It is important to note that many savvy business owners and professional practices attempt to place a low false value on the asset within the corporate documents. Many spouses of a physician have heard something to the effect of “our practice documents specifically established the ownership interest to be $35,000 so there is no reason to fight over how much it is worth.”
If you are the spouse of the business owner or professional you simply should disregard any such claim and seek the advice of our experienced attorneys. If you are the owner of a business or professional practice it is in your interest to ensure that the valuation fairly and accurately reflects the actual value of your company and the impact it would have upon the valuation if you were not there to continue running it.
The actual valuation must be accomplished using experts who have extensive knowledge regarding the specific nature of the business or practice, local valuation nuances, as well as expertise regarding the best processes to accurately asses the present total value of the community’s interest in the business or practice.
How is value of a business or professional practice calculated and what factors will go into this calculation. There are several issues to consider including, but not limited to:
- Real estate
- The base of existing customers
- Annual revenues
- The likelihood that existing business patterns will continue into the future (Goodwill)
If the parties are unable to reach an agreement upon the valuation of the asset(s) through negotiation or mediation, the Court will hear from experts on both sides and ultimately establish the valuation of the community’s interest in the business or professional practice.
Once the valuation is established a decision must be reached as to the disposition of the business asset itself. One option is to sell the shares of the business or the company or practice itself and divide the proceeds. If the spouse with the ownership interest wishes to keep it, they must reimburse the community for their former spouse’s portion of the business interest.
Usually that means the transfer of other assets from the business owner’s share of the community property in the form of stocks or investment accounts, cash, equity in the family home or some other asset.
In summary, if you or your spouse (or the two of you together) own an interest in a business or professional practice the quality of your attorney will have a substantial impact on the outcome of your North County or Carlsbad divorce as well as your financial future. How is the value of a business or professional practice calculated in
The seasoned expert attorneys at Burke & Domercq have decades of experience in these matters, and aggressively represent our client’s best interests. We invite you to contact us or call 760-434-3330 to schedule an appointment with one of our lawyers.