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How are businesses valued in a California divorce?

On Behalf of | Aug 9, 2023 | Property Division

Property division gets more complex when divorcing parties have multiple and high-value marital assets. Unlike cash which the court can easily divide, vacation homes and marital businesses undergo a more challenging valuation process.

Different methods to value a business

Before the court distributes a business between spouses, it has to put a number on its value. Depending on the circumstances of the case, courts will use any of the following methods to conduct a business valuation:

  • Fair market value: This method involves determining how much the business would sell in the current market if there were a willing buyer.
  • Investment value: This approach considers the value investors would pay to acquire the business and its profit potential.
  • Asset value: This refers to the business’s total asset value, including several tangible and intangible assets.

To properly assess the business value, the court will assign an expert valuator to conduct the valuation by looking into the business’s financial documents and other relevant factors.

What happens after valuation?

Once the court determines the value of the business, it will proceed with the division. To determine each spouse’s share, the court can consider several factors, such as how long the company is in operation and each spouse’s contribution to the business. Note that California is a community property state, meaning it generally divides marital property equally between spouses.

Considering the business’s value and each spouse’s interests, the parties may agree to have one spouse buy the other’s share of the company, jointly own and manage the business or sell the business and divide the proceeds among them. If they cannot agree, the court will decide for them.

Protecting interests during a high-asset divorce

Given its high-asset nature, a marital business can create concerns among divorce parties, especially when their interests are on the line. To protect asset rights, it is essential to understand the property division process and keep a list of all the properties involved.