Business Valuation at Divorce: Everything You Need To Know
One of the most important issues determined in a divorce is the division of marital assets. In addition to real estate, cars, and home appliances, an individual’s ownership interest in a business or professional practice is subject to division upon divorce. The nature and extent of this division depend on the application of complex community property principles under California law.
At Sullivan Law & Associates, our family law litigation experience spans over nearly 50 years. Orange County residents and their businesses have grown to rely on our ability to provide them with customized legal strategies that are suited for the particular needs and issues unique to their cases. Known for our ability to get the job done for business owners, word has traveled fast that we can garner a positive outcome for any family law or business law issue. For more information, contact Sullivan Law & Associates at (949) 590-8100 or online to arrange a consultation about your case.
Divorce for Business Owners and Professionals in Orange County
During a divorce in Orange County, business owners and professionals confront distinct financial challenges that necessitate the expertise of a skilled and experienced divorce attorney. If you find yourself in this situation, seek out divorce attorneys who possess the specific knowledge and proficiency in handling complex and high-asset divorces. Our attorneys are adept at crafting innovative and strategic solutions tailored to your goals, ensuring a satisfactory resolution to your case.
With a comprehensive approach, collaborative culture, and unmatched experience and expertise in complex divorces, our team is equipped to address the unique needs of high-level professionals and business owners. If you’re in the midst of a high net-worth divorce involving the valuation of your business, our attorneys are dedicated to finding effective and creative strategies to resolve intricate issues.
Understanding Business Valuation in California
According to community property principles, the parties’ community estate is equally divided upon divorce. As a result, courts must determine the valuation of the parties’ community assets, including their business interests.
The court must determine the extent to which a party’s property interest in a business or professional practice is attributed to the marital community and the feasibility of dividing that interest. We have experience with the following business valuation issues:
- Market value;
- Time valuations;
- Business asset valuations;
- Privately owned stock;
- Partnerships;
- Professional practices;
- Business goodwill;
- And much more!
Factors Influencing Business Valuation in California
Several factors should be considered during the business valuation process. While this list is not exhaustive, it includes the following considerations:
- Your business structure
- The specific roles both you and your spouse have played in the business
- When the business started
- Who started the business
- Whether any specific laws govern ownership in regard to your type of business when divorce occurs
- Pre-existing agreements that may have been established with partners and shareholders during the inception of your business.
- What steps can be taken to ensure business operations aren’t disrupted throughout the business valuation, divorce, and asset distribution processes
Understanding the complexities of business valuation is crucial, but it shouldn’t cause unnecessary worry or intimidation. Instead, it emphasizes the significance of consulting with an experienced business valuation attorney in Newport Beach.
Lawyers, Doctors, Financial Advisors And Other Professionals
When it comes to divorce cases involving private practices, the expertise of a skilled attorney is essential to navigate this complex territory. It requires a comprehensive understanding of various aspects such as valuation, taxation, compensation, accounting, business structure, and relevant statutes and case laws.
A thorough analysis is necessary to address multiple issues including perks, goodwill, contingency fees, accounts payable and receivable, depreciation, liabilities, equipment, assets, cash flow, intellectual property valuation, compensation, working capital needs, partnership agreements, buy/sell agreements, and other relevant matters.
With almost half a century of experience in handling professional divorces in Orange County, we possess in-depth knowledge of private practice valuations, allowing us to provide informed analyses for each practice involved in our Orange County divorces.
Why Choose Sullivan Law & Associates
Considerations for Divorcing a California Business Owner
If you are considering a divorce or currently going through one with a business owner in Orange County, there are several crucial factors to bear in mind:
Keep in mind that a business may require more than 50% of its overall value to remain viable
Requesting the entire 50% of the business as a payout during the divorce could have significant consequences for its normal functioning. In certain circumstances, the company may struggle to survive such a substantial loss.
Additionally, immediately demanding your half of the business might negatively impact your spouse’s ability to provide spousal or child support in the future. It is therefore wise to explore alternatives to a payout when negotiating for your share of the business. This approach can help ensure you receive a fair portion without compromising the company’s stability or your spouse’s financial well-being.
Stay alert as your former spouse may attempt to deceive you
In order to safeguard their own interests, a business owner who is your ex-spouse might employ tactics such as underreporting income or concealing assets in protected accounts, with the intent of keeping community property out of your reach during a divorce. At times, business owners resort to unfair and even unlawful practices to shield themselves in such situations.
However, our experienced and reliable Newport Beach business valuation lawyers are adept at recognizing the signs when business owners attempt to hide or safeguard assets. We can identify the red flags and assist in ensuring that you receive the rightful share you are entitled to.
Navigating business arrangements can be complex, particularly in cases involving high-value divorces
When navigating intricate business arrangements, it is frequently imperative to enlist the services of a forensic accountant. Their expertise aids in assessing the value of community property within the business. By securing the appropriate legal and financial support during a divorce in California, you can gain a comprehensive understanding of your entitlements to community property. This ensures a fair agreement for the equitable distribution of your assets, taking into account the unique circumstances surrounding your situation.
Frequently Asked Questions
How is a Business Valued in an Orange County Divorce
In divorce cases, a thorough valuation by a forensic accountant is typically necessary to determine the value of a business. The two most common valuation methods used in Orange County family law courts are the Capitalization of Earnings and Capitalization of Excess Earnings. Unlike valuations for sale purposes, family law courts focus on past financial performance rather than future revenue.
The value of the business is based on its ongoing investment value, as there will be no sale involved. When determining valuation, experts usually analyze the business’s financial performance over the past five years, excluding non-recurring events that might affect accuracy.
When is a Business Valued in an Orange County Divorce
Generally, a business is valued close to the settlement or trial date, with exceptions. In some cases, a business may be valued on the date of separation or other alternate valuation dates. This is common for businesses where the operator-spouse is the primary driver of revenue, such as solo practice lawyers, doctors, or accountants. The theory behind valuing at the date of separation is that post-separation earnings are considered separate property.
If the business earnings are essentially those of the owner-operator spouse, any post-separation performance is attributed to their work and skills. A business may also be valued at the date of separation if an intentional or grossly negligent act by the operator-spouse decreases its value after separation.
How is the Character of a Business Determined in an Orange County Divorce
The characterization of a business is determined by its acquisition date. If purchased or founded before marriage, it’s considered separate property. If founded or purchased during marriage, it’s likely community property. If purchased with separate property, it may remain as separate property. Regardless of its value increase during marriage, if founded or purchased before marriage, it remains separate property. However, the community may be entitled to reimbursement for the value increase depending on various factors.
Is There A Need To Deviate From Fair Market Value When Valuing A Business In A Divorce?
If a business existed and was owned by one spouse before the marriage, California’s community property law stipulates that the community interest in the business should be determined and valued using either the Pereira Method or the Van Camp Method.
- The Pereira application is typically applicable when the personal efforts of the spouse during the marriage have contributed to the success of the business.
- The Van Camp application, on the other hand, is usually used when there has been minimal or no community contribution to the success of the business. Apart from ensuring that the community is fairly compensated for work performed for the separate property business, any growth is generally attributed to external factors rather than the spouse’s efforts during the marriage, making it separate property growth.
Is It Possible To Establish My Business As Separate Property?
During a divorce, a California court will consider two types of property when dividing assets:
- Community property refers to assets acquired or owned by a couple during their marriage in California. However, gifts and inheritances are excluded from this category.
- Separate property includes assets acquired before marriage or entering a domestic partnership. Inheritances and gifts received during the marriage also fall under this designation.
When a business owner files for divorce, they have several options to establish that the business is considered separate property, including:
- Utilizing a statement in the form of a deed or other documentary evidence is a viable option.
- A written agreement between the parties can serve as concrete evidence of the property’s separate nature, distinguishing it from community property.
The latter option typically involves a post-nuptial agreement, where spouses mutually decide on the future division of their assets. To protect your business in the event of a divorce, it’s advisable to consider a pre-nuptial agreement. This entails recording and signing the agreement with your future spouse before marriage, ensuring a swift and straightforward way to safeguard your business.
Contact Our Skilled Business Valuation Lawyers in Newport Beach, CA Now
The time, energy, and focus you devoted to building your business or professional practice has a personal worth that exceeds valuation. To ensure that the family court judge and opposing party give your interests the respect and consideration they deserve, you should consult an experienced business attorney in Orange County for legal representation.
At Sullivan Law & Associates, we are committed to protecting and preserving your business interests against an unfair distribution during your divorce. Call Sullivan Law & Associates at (949) 590-8100 or contact us online to schedule an appointment with one of our dedicated divorce attorneys today.