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The Valuation of Business Ownership or a Professional Practice in a San Diego Divorce

On Behalf of | Apr 25, 2021 | Professional Practice & Business Ownership

The valuation of business ownership or professional practice in a San Diego divorce is a critical process requiring extensive legal skill and experience. After  decades of practice in litigation and California family law, and involvement in divorces with issues of business ownership, physician practices, attorney practices, and substantial assets we can tell you that accurate valuation is the key to these cases.

There are several acceptable methods for establishing the value of the “marital interest” in a business, or professional practice. The “appraised value” of a business or practice establishes how much a business or practice would generate if it were sold outright.  In some cases, an “earnings multiplier” is applied to calculate the value of an entity based upon the business or income it generates.  It is important to carefully analyze not only the reported income of the entity itself, but to use realistic formulas as well.  It is too easy to over-inflate or under-estimate the value of an entity in this process without careful examination of all factors and the underlying associated data.

Another factor that can influence the valuation of a business or professional practice in a San Diego divorce is “Goodwill.” “Goodwill” is the financial value of the spouse’s skill, relationships, reputation and hard work upon the value of the business itself.  This can be a critical value, as the differential between “enterprise” goodwill and “personal” goodwill with regard to the specific assets of the company or practice can have a profound impact on the value of a business or professional practice.

Once the parties arrive at the “valuation” of the spouse’s interest in the business or professional practice, we must determine how to offset the “marital interest” in that asset to the other spouse. Those that own a business or who are part of a professional practice do not usually want to see the forced sale (or allocation of ownership to the other spouse) of their entity in order to provide the value necessary to offset the marital property interest of their spouse.  There are often other alternatives such as the transfer of other assets, an increased share of the equity of the family home, non-voting stock in the business or even monthly payments.

If you are interested in protecting the valuation of business ownership or professional practice in a San Diego divorce, or if your spouse owns an interest in a closely-held family business or participates in a professional practice we invite you to 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.