Business Valuations In Divorce
Divorce is often complicated, and there is no ‘universal handbook.’ Every marriage is different, so every divorce is different. No couple has precisely the same assets, motive, or agenda when divorcing. The uncertainty surrounding divorce and the asset-division portion of divorce, is compounded exponentially when you have a business to consider. Not only are you concerned about the divorce not negatively impacting your business or livelihood, but you also most likely have the added stress and complication of figuring out how to successfully divide the business. Understanding this process and what you can anticipate moving forward can help to empower you and grant you peace of mind, as well as ideas for how to begin moving forward.
In order to divide an asset, you must determine the value of that asset. A business is considered an asset, and absent an exception such as a pre-nuptial or post-nuptial agreement, the business will likely be subject to some form of division in the course of your divorce. Determining the value of a business in a California divorce case, however, is very often quite complex. Again, every case is different, and businesses vary in size and value of assets. Quite often an attorney will engage with a certified public accountant (CPA) or valuation expert who can help sort through the details of the business and help complete the business valuation. In order to do this, these professionals will need to gain access to your financial records. But what financial records need to be made available?
Financial Documents to Provide for Business Valuation
In order to conduct an accurate business valuation you should be prepared to provide several items of documentation, including:
- Inventory of assets
- Records of cash flow, debt, and movement of assets
- Tax returns
- Bookkeeping files
What Factors Into a Business Valuation?
Again, there is no on-size-fits-all method for valuating a California business. However, some of the valuation methods and tools frequently used by experts include:
- Income approach,
- Market approach,
- Asset approach,
- Capitalized earnings,
- Transaction method,
- Discounted Cash Flows.
Each valuation method must be used appropriately in order to be deemed valid by the court, and not every valuation method will be suitable to every situation. These methods are discussed in greater depth in our article “Business Valuation Methods in California 101.”
Retaining a business valuation expert can be essential in ensuring that the company is valuated properly and you retain what interest in the property is due to you/is considered divisible marital property under California law.
When valuing a business, there are so many variables and items which may be considered. So much is dependent on the details of a particular case – such as the value of the business, assets at stake, what valuation method is used, etc. However, the list below provides many of the common factors that are considered in a business valuation, and in how to equitably divide the asset:
- Consider the date of separation: has the business’s value increased or decreased since that date? If so, the amount bookmarked for marital division may be affected.
- Did the business pre-date the marriage?
- Which spouse primarily ran the company?
- What portion of the business value is community property?
- What other parties own stakes/percentages of the company (i.e., are there outside partners?)
- What percentage of the business does the spouse have?
- What is the business’s intangible value?
Contact Cardwell, Steigerwald Young
When it comes to your life and livelihood, you need to engage with professionals that you can trust. Divorce is always significant. But when the divorce may affect your business and livelihood, it is even more crucial that you have experts in your corner to help you navigate the process to your advantage. Contact the San Francisco property division lawyers at Cardwell, Steigerwald Young to discuss your case today.