Our Irvine Business Valuation Lawyers Will Help You Protect Your Interests
If you are contemplating a divorce and you or your spouse owns a business, determining the value of the business will be crucial to ensuring an equal distribution of your community property. This can be important even if the business is considered the separate property of your spouse, as there is still the opportunity to find a community property interest in the growth during the marriage. This, of course, assumes that the business has not been carved out of your divorce in a prenuptial or postnuptial agreement. But, for most high-net-worth couples, addressing business ownership is a key component of the divorce process, and hiring an Orange County divorce lawyer to assist with business valuation can be essential to securing a favorable result.
Business Valuation in a Divorce: Who Decides?
With regard to business valuation, a fundamental question is: Who decides what the business is worth? Due to divorcing spouses’ competing interests, one spouse will generally benefit from a lower valuation, while the other will want the business to be valued as highly as possible. Typically, each spouse will hire his or her own business valuation expert; and then, depending upon how far apart their respective valuations are, the spouses will either (i) work to come to terms, or (ii) engage the court to decide the value. Alternatively, some couples will agree from the outset to engage a neutral third party, such as a mediator, to provide an unbiased valuation.
Determining the Value of a Privately-Held Business for Purposes of Getting Divorced in California
Regarding the valuation itself, here too, there are multiple options available. There is no single “right” way to value a privately-held business, and different types of businesses can warrant the emphasis or de-emphasis of various factors. With this in mind, generally speaking, some of the primary considerations that go into valuing a privately-held business for purposes of a divorce include:
- Cash flow and accounts receivable
- Cash reserves
- Contracts with clients, customers, vendors, and other third parties
- Debts and other liabilities
- Earnings capacity and capacity to pay dividends
- “Goodwill” of the company
- Human capital
- Intangible assets (including goodwill and intellectual property (IP))
- Nature of the business and economic outlook
- Physical assets
- Prior sales (if applicable)
- Real estate holdings
- Securities and other investments
For small businesses, the owner’s or owners’ role(s) in the business can be significant factors as well. For example, in the case of a solo professional practice, the reasonable compensation needed to replace the owner’s full-time commitment may be an important aspect of the value. This can have a significant impact on the business’s valuation, and it can impact other aspects of the distribution process as well. Setting the value of the business aside, do both parties want to share ownership after their divorce? Would it make more sense for one spouse to retain the entire business (depending on its valuation) with the other spouse receiving a proportionate share of the couple’s other marital assets? These are just two of many important questions that will need to be answered.
Speak with an Irvine Business Valuation Lawyer in Confidence
If you would like more information, we encourage you to schedule an initial consultation with one of our divorce attorneys. To speak with an Irvine business valuation lawyer at Seastrom Tuttle & Murphy in confidence, call 949-474-0800 or inquire online today.