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The Basics of a Business Valuation in a San Diego Divorce

On Behalf of | Oct 21, 2020 | Professional Practice & Business Ownership

What are the basics of a business valuation in a San Diego divorce?  Why is valuation one of the most central issues in a divorce which involves a business interest or professional practice?

If the business or professional practice interest was obtained prior to the marriage and a valid prenuptial agreement excludes the asset, and/or no community funds or labor-related contributions were made by the spouse during the course of the marriage the asset should be considered to be the separate property of the spouse who owns it.

Usually our Certified Family Law Specialists would investigate the source of funds used to start the company, the date of the marriage and the timing of the acquisition of the business interest.

If the company was started or the interest in the business or professional practice was obtained during the course of the marriage, a business asset is a community asset under California law.  Community assets are to be equally divided between the parties. If the asset is community property and a business owning spouse wishes to keep their business they must compensate their former spouse for 50% of the value of their equity in the asset.

The community property interest in the business or professional practice is established through a process known as “valuation.”

Generally speaking the parties would either each separately hire a professional business appraiser, or they mutually agree upon the identification of a business appraisal expert.  The nature of the business itself will usually establish the method employed to establish the valuation of the business interest.  One method is simple: how much would a willing buyer pay to a willing seller if the business or professional practice were put up for sale?  Another approach to valuation involves complicated calculations based upon income and Goodwill associated with the spouse who owns the asset.  Another approach places a value on the company’s assets and subtracts liabilities.

The reality of business valuation in a San Diego divorce is the interests of the spouses are diametrically opposed.  The spouse who owns the business or professional practice wants the lowest possible valuation.  The spouse of the business owner wants the valuation to be as high as possible.

The process of establishing business valuation in a San Diego divorce can be quite contentious.  If the parties are unable to agree upon valuation through negotiation the matter could be taken to mediation.  This provides the protections of privacy and confidentiality and keeps your private business out of the public record.  If mediation is unsuccessful, the matter must be placed before the Judge in your case who will review the evidence at hand and determine the valuation to be used.

This is why it is so important to be represented by the experienced Certified Family Law Specialists at Burke & Domercq.  We have represented clients in numerous divorce cases involving a business or professional practice.  We will work to protect your interests and achieve the best possible outcome in your case.

Protect your own interests and contact us or call 760-389-3927 to schedule an appointment for a remote or socially distanced consultation with one of our experienced Certified Family Law Specialists.