Family Matters.
When It Really Matters.

Strategies for Business Valuation in a Divorce

On Behalf of | Aug 23, 2019 | Professional Practice & Business Ownership

What are some of the strategies for business valuation in a divorce here in North County San Diego?  Generally speaking, a business which was started or acquired by one of the spouses after the date of marriage is considered to be community property.  Community property must be divided equally between the spouses during a divorce.  This means half the value of the business is considered to be part of the business owner’s spousal community interest.

There are multiple strategies for business valuation in a divorce setting.  The type of business will determine the valuation methods available at the time of your divorce.  Business valuation is usually conducted by an expert.  Each spouse usually hires their own independent expert to establish valuation and therefore the community interest in the business.

If there are comparable businesses (such as a taco shop or an auto repair facility) the specific sale price of similar businesses can be used to help determine the valuation.  Another strategy is to determine what price the business could actually be sold to a third party (known as an “arm’s length” transaction).  This is more common in commercial real estate and other similar property scenarios.

In other situations, forensic accountants can work to establish a “book value” or an “adjusted book value” based upon and can be used to determine valuation based upon gross or net revenues.

One of the most common strategies for business valuation in a divorce here in Carlsbad is known as “capitalized earnings.”  Capitalized earnings is based upon the company’s ability to continue to produce income in the future.  In this strategy the past earnings of the company are used to establish a normalized amount of earnings, multiplied by a “capitalization factor.”

The various strategies for business valuation are one of the most crucial elements of a divorce involving business ownership or a professional practice.  You will need the experienced counsel of the Certified Family Law Specialists at Burke & Domercq.  We invite you to review the strong recommendations of former clients and the legal industry and contact us or call 760-389-3927 to learn more about how to protect your interests and schedule an appointment.