Establishing the valuation of a business interest in a divorce is often one of the most contentious issues in these cases. The community interest in the business is divided equally between the parties. If the owner of the business wishes to keep it after the divorce they must “offset” any community interest their former spouse has in the business.
The owner of the business obviously wants the valuation of the business to be as low as possible to reduce the amount they must pay a former spouse in order to keep it after the divorce. The spouse of the business owner wants the highest possible valuation of the business as it increases their portion of the community property.
The Judge in these cases understands these competing interests and ultimately usually decides the valuation of the business if the parties cannot agree on the matter themselves.
How much is your business or professional practice worth in a Carlsbad divorce case? The process of valuation is usually based upon the testimony of the expert appraiser(s). Each party may seek their own valuation, or they may agree upon an independent appraiser.
There are many factors which can affect the value of any company. These include, but are not limited to:
- The past, present and future profits and earnings of the company
- Customer loyalty and the likelihood business will continue or grow in the future
- The length of time the company has existed and the location of the business
- The assets and liabilities of the company
There are multiple strategies to answer the question of how much is a business or professional practice worth in a Carlsbad divorce case. The method to value the company will depend upon the nature of the business itself. The appraiser may base their valuation upon what a willing buyer would pay a willing seller in a genuinely arms-length transaction. The appraiser may use “comparables” when similar businesses are more commonly bought and sold within the San Diego region.
One of the most common methods to establish valuation is “Capitalized Earnings.” This is an income-oriented approach usually based upon the continued expectations of earnings and the value of these earnings over a period of time / years.
Another method of valuation basically establishes the value of all existing assets while subtracting the amount of existing and/or contingent liabilities.
Any valuation must determine the value of “Goodwill” associated with the business and the impact the spouse who owns the business will have upon the continuation of the company and its relationship with customers. Goodwill can be challenging to properly establish. Generally speaking, the longer the business has existed and the stronger it’s sales the higher the value of Goodwill.
What is a business or professional practice worth in a Carlsbad divorce? This is usually one of the most important questions in any divorce which involves a business interest.