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Conducting a Business Valuation in a San Diego Divorce

On Behalf of | Dec 8, 2020 | Professional Practice & Business Ownership

The process of conducting a business valuation in a San Diego divorce is quite legally and financially complex.  There are many different methods to value the community interest in a small business, corporate entity or professional partnership. The two former spouses have directly competing interests in the outcome of the valuation.  Ultimately, the valuation of any community interest in a business will have a substantial impact on the financial outcome of the divorce.

What do you need to know about the community interest in a company and conducting a business valuation in a San Diego divorce?

If the business was started or acquired during the course of the marriage it will in all likelihood be considered to be a community asset.  If community funds, assets or even the credit of the spouses were used to advance the business in any way there is a community interest in the business.  Community assets are divided equally between the former spouses in a California divorce.

In order to appropriately divide the community interest in a business or professional practice the Court must establish the present monetary value of the ownership position in the company.  This is accomplished through a process known as “valuation.”

One straight forward method is to sell the business interest.  The central question is “what would a willing buyer pay to a willing seller for this business interest?”  Other methods of valuation are based upon an asset model, income over a period of years, or a combination of those factors.  The nature of the business interest itself should determine the method an expert uses to determine the valuation.

In addition, one must consider separate issues such as intellectual property, goodwill, the likelihood of future performance and the market(s) the company serves.

There are many ways to disguise the value of all of these factors.  Forensic accounting analysis can help to reveal this activity to ensure a fair valuation.  If the owner of the business wishes to keep the company they must “offset” the half of the valuation which represents the interest of the non-ownership spouse.  The lower the valuation the less the amount the business owner must pay their former spouse to keep their company.

Conducting a business valuation in a San Diego divorce is legally and financially complex.  You need experienced, proven San Diego divorce lawyers to represent and protect your interests.

We invite you to 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.