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Valuing a small business in a California divorce

On Behalf of | Jun 28, 2018 | Firm News, Property Division

Most residents of Sacramento contemplating a divorce understand that a fundamental issues is the division of marital assets. For couples without high value assets, the division can be relatively simple, but for couples who have accumulated significant wealth, the division of property can be complex. One of the thorniest questions is how to value a small business, especially if both spouses worked in the business.

The first step is the complete and accurate disclosure of all assets. For a small business, the company’s assets and liabilities must be carefully tabulated. Next, a valuation date must be chosen. Usually, the parties select a date that is close to either the date of separation or the date of trial. Using some other valuation date may require approval from the court.

Perhaps, the most difficult issue is choosing an acceptable standard of value. Most California businesses are valued at fair market value. Fair market value is the price that a willing buyer would pay to a willing seller, if neither was under any compulsion to buy or sell, and if both had reasonable knowledge of the pertinent facts of the transaction.

Determining fair market value can be difficult. Fair market value for a manufacturing concern might be the company’s net asset value, including accounts receivable and current liabilities. If a company earns its income by renting property, its fair market value may depend on the length of various leases and the market value of individual buildings.

Many questions concerning the valuation of a small business can be answered by consulting an experienced divorce attorney. A knowledgeable lawyer will usually rely on his or her experience and on the opinions of valuation experts, such as accountants and appraisers. Seeking advice from a lawyer early in the divorce process can help avoid valuation errors and mistakes in negotiating a settlement to property division issues.