What Every Business Owner Should Know About Valuation During A Divorce

When spouses divorce in California, if there’s a dispute regarding marital assets and property, and if no prenuptial agreement or postnuptial agreement spells out another resolution, a California court will typically divide the couple’s assets and property in half.

Dividing properties and assets between divorcing spouses sounds easy, but dividing marital properties and assets – in many cases – is both difficult and contentious. A business is considered an asset, but how will a business be divided, and how can a divided business survive? Can divorce law firm in California help?

If you are a California business owner and you are divorcing or anticipating a divorce, you are about to learn how divorce can impact your operation. You may not necessarily lose half of your business in a divorce, but you will very much require a divorce attorney’s guidance and advice.

What Happens To Assets When Divorcing Spouses Can’t Agree?

If there is no prenuptial agreement or postnuptial agreement, and if the spouses and their divorce lawyers cannot negotiate a division of the properties and assets that is acceptable to both spouses, the court will split the properties and assets “fifty-fifty” in the divorce proceeding.

More precisely, when divorcing partners cannot reach an agreement about dividing their assets and properties, the court will have the assets “characterized” – that is, every asset and property item will be identified as individual property or as marital property.

How Does A California Divorce Court “characterize” A Business?

When your business is being characterized, the court will need answers to the following questions:

• Did you inherit or create the business?
• If it’s a start-up, was the business started before or during the marriage?
• If it’s an inheritance, was it inherited before or during the marriage?
• If it’s an inheritance, is it solely yours or is it co-owned with other heirs?
• Do you have any business partners?

Don’t just presume that you’ll lose half of your business and that it will be characterized as marital property – everything hinges on details. For instance, if your business was created with your personal assets, you may be able to claim it as your personal property.

However, when one or both spouses have an ownership interest in a closely held corporation, that ownership interest is typically characterized as a marital asset and is therefore subject to division in a divorce proceeding in this state.

What Will A Business Valuator Do?

If a business – or the ownership interest in a business – must be divided, one or both spouses may hire a business valuator.

Every company is different, but typically a business valuator will request financial documents such as tax returns, financial statements, and balance sheets. A valuator may also meet with management and visit the operation’s headquarters, production facilities, and/or main offices.

A business valuator will produce a business valuation report which estimates the current value and the projected future value of the business or the ownership interest in the business.

What If Either Spouse Disputes The Valuator’s Findings?

Divorcing spouses may or may not agree to accept the figures in the business valuation report. If they do not agree, or if they hired different valuators who arrive at different conclusions, the valuator(s) may have to testify in a divorce hearing about valuation techniques and methods.

If the parties cannot agree on a business valuation estimate, a judge is ultimately tasked with assigning a dollar value to the business and with dividing that value between the divorcing spouses.

What Financial Disclosure Is Required In A California Divorce?

To divorce in California, both spouses must file detailed declarations of financial disclosure. The spouse who files divorce papers must complete a financial disclosure when filing for divorce or within sixty days after filing.

Let an experienced Cerritos divorce attorney help you complete the disclosure documents. Your declaration of financial disclosure must list all individual and marital properties and assets that the spouses have acquired before the marriage as well as during the marriage.

All properties, assets, debts, and incomes must be fully disclosed by both divorcing spouses. The failure to make a full financial disclosure is illegal and may be considered perjury.

When Should You Speak To A California Divorce Law Firm?

Financial disclosures provide the court with a precise snapshot of each partner’s financial condition, and that helps the court determine how to divide the marital properties and assets fairly.

If you own a business in California, it is vital to “get in front of” a divorce before your business is negatively affected. Even before you file divorce papers – or as soon as you know that your spouse is filing for divorce – speak at once to an experienced Cerritos divorce attorney.

How Can Your Business Be Protected In Advance Of A Divorce?

These recommendations for business owners will help you to protect the business from some of the problems that may arise in a divorce:

• Maintain accurate, comprehensive business records. Keep personal finances entirely separate from business finances.
• Obtain an objective, accurate, and precise valuation of your business in advance – to make sure that your spouse doesn’t receive more than his or her fair share.

In your divorce negotiations, you may have to negotiate other assets to keep the ownership of your business. For example, you might have to sacrifice a retirement account or some real estate as compensation for half of the operation.

What Are The Options When Spouses Are Co-owners Of A Business?

If they co-own a business, divorcing spouses may choose to continue as partners, and neither spouse will need to sacrifice his or her share of the operation. A valuation won’t even be required in such cases. Another option is simply to sell a co-owned business and split the proceeds.

As a California business owner, unless you’re a sole proprietor or you co-own the business exclusively with your spouse, your business needs a business plan, an operating agreement, or by-laws that spell out what will happen when an owner divorces.

You should also ask an attorney to review any business documents or contracts that may affect your business interests in a California divorce proceeding.

What Must Be Avoided When A Business Owner Divorces?

What you and your divorce attorney can’t allow is to let your spouse take half of the business – and the profits – and also receive alimony indefinitely. A good divorce lawyer can and must make sure that “double-dipping” by your spouse is not part of your divorce settlement.

Divorce is always difficult, but if you own a business, you must focus on your business interests. A divorce doesn’t have to ruin the business, but you must have the right divorce lawyer’s help.

Before you seek a divorce, or if you’re served with divorce papers, contact an experienced California divorce lawyer who will protect your business and your long-term business interests. Meeting with a divorce attorney as early as possible is the best strategy, and it’s your right.