Understanding Valuation &
Division of Businesses
Sept. 21, 2022
When divorcing in California, the couple’s community property must be divided between the spouses in an equitable manner. Courts have broad discretion when it comes to assigning values and dividing assets in a divorce. But, what about your business?
The valuation and division of businesses in California divorces can be tricky. Many spouses do not understand how a divorce will impact their business and what share in the business they will be able to keep after the divorce is complete.
If you are going through a divorce, or are considering ending your marriage, and you own a business, you should discuss the valuation and division of your business with an experienced family law attorney. At The Law Offices of Steven E. Springer, we understand the importance of assigning an accurate value to each asset in your divorce, including a business.
With offices in San Jose and Morgan Hill, we handle complex divorce and property division matters throughout the state of California, including Alameda County, Santa Clara County, Fremont, Pleasanton, and Hayworth.
Valuation of Business
When ending a marriage in which spouses have a business, valuation of the business becomes a critical step. There are three approaches for assigning a value to a business:
Assets. This approach focuses on the business’s net asset value, which means the valuation of the business considers the value of the assets.
Income. This approach focuses on determining the business’s value based on its past, current, and/or future expected earnings.
Market. This approach focuses on comparing the business to similar businesses to determine its market value.
Valuation of the business begins with choosing the appropriate approach for assigning the value. If you cannot decide which approach is appropriate for your business, consider contacting a knowledgeable attorney for legal guidance.
Division of the Business
Once the parties have assigned a value to their business, they can proceed to the division of the business. However, dividing a business can be even more complicated than determining its value. First of all, the parties need to understand whether their business is considered “separate” or “community” property for the purposes of equitable distribution.
If the business was founded before the marriage, it would most likely be considered the founding spouse’s separate property. However, any income and assets acquired by the spouse from the business during the marriage may be treated as community property and be subject to equitable distribution.
If the spouse who owned the business before the marriage used community property funds to enhance the value of the business, the business may be considered community property in the eyes of the law. In addition, a spouse may be entitled to a share of the spouse’s business if they made any contributions to the business during the marriage.
Options for Dividing a Business in a Divorce
There are several options for dividing a business in a divorce. The most common options include:
Buy-out. The most common method for dividing a business in a divorce involves one spouse buying out their spouse’s interest in the business to gain sole ownership. A spouse can buy out the other spouse’s interest by paying the required amount or giving up another asset in exchange for the interest.
Sell and divide. A less common approach to the division of businesses in a divorce is selling it and dividing the proceeds. However, selling the business may not be the best option if the spouses worked hard to build their business.
Co-own. In some cases, former spouses may agree to continue to jointly own a business after a divorce. This approach is not a “division” per se because both spouses can continue to work and keep business operations intact.
Everyone’s situation is different, which is why what works for others may not work for you. For this reason, you may want to consider consulting with a family law attorney to explore your options for dividing a business.
Let The Law Offices of
Steven E. Springer Help
The valuation and division of businesses is one of the most complicated and contentious aspects of a divorce. Fortunately, our family law attorneys at The Law Offices of Steven E. Springer can help. We assist clients in valuing their businesses and dividing their business interests in a fair manner. Reach out to our offices in San Jose or Morgan Hill to schedule a free consultation now.