Dividing the Growth in a Business During a San Diego Divorce - Valuation

Dividing the Growth in a Business During a San Diego Divorce

Pierre Domercq Professional Practice & Business Ownership

How is a business handled in a San Diego divorce?  One of the first questions is when was the business interest acquired?  If the business was acquired or started during the course of the marriage it will be considered as a community asset which is to be divided equally between the parties.  If the business was acquired prior to the marriage the parties will in all likelihood be dividing the growth in a business during the course of their marriage through the date of separation.

How is this accomplished?  How do you divide an interest in a business or professional practice in a San Diego divorce?  The first step is to establish the valuation of the business.  How much is the interest in the company worth?  The valuation of a business asset in a divorce is usually accomplished by an expert.  In some cases each party will have their own expert.  In other cases, the parties may agree upon a single expert to establish a neutral valuation.

How do you fairly establish the valuation of a company so that one might begin the process of dividing the growth in a business during the term of the marriage.  While there are many valid ways to conduct valuation, the most common are income, market or asset-based valuations.

Income is perhaps the most common strategy to establish the valuation of a business interest.  Generally speaking the income approach considers the gross or net income of the company over the past 3 to 5 years and the likelihood of how it will perform in the future.  The nature of the business helps to establish a “factor” which is then multiplied against the income.  If the annual income were established as $1 million and the appropriate factor was “5” the value of the company would be $5 million.

Another approach is to establish the amount a willing buyer would pay to a willing seller.  One might actually decide to sell the business itself.  The revenues of the sale are to be divided equally between the parties.

Another valuation option is the asset approach.  In this basic strategy one adds up all of the value of the assets of the business and subtracts the sum of all existing liabilities.

Dividing the growth in a business during a San Diego marriage is a financially and legally complex task.  One must establish the value of the ownership interest at the time of the marriage.  The next step is to establish the value of the business on the date of separation.  Half of the resulting appreciation of value must be offset by other community property or assets if the owner of the company wishes to keep the business after the divorce.

Protect your own interests and contact us or call 760-434-3330 to schedule an appointment for a remote or socially distanced consultation with one of our experienced Certified Family Law Specialists.