Business valuation in a California divorce refers to the process of determining the monetary value of a business or professional practice subject to a marital dissolution proceeding. Whether a business is community property of both spouses or the separate property of one spouse, the value of that business needs to be determined to fairly divide the marital assets. Consider other financial aspects such as support and attorney fees, and any equitable apportionment claims. In California, community property presumes that any assets acquired during the marriage are community property and subject to equal division between spouses. This includes the value of a business or professional practice that was established during the marriage.  If a separate property business exists prior to marriage but grows during the marriage, there may be a community property interest in the growth (equitable apportionment).

Business valuation is a highly litigated and potentially complex area of family law, as typically only one spouse has managed and controlled the business, information, and records. Antonyan Miranda staffs an in-house Forensic Accountancy department to help get the answers to these questions, and we work with outside forensic account experts as necessary or required. 

How is a Business Valuation Conducted in a California Divorce?

ENGAGEMENT OF A VALUATION EXPERT:

Both spouses may hire their own independent business valuation expert or agree on a neutral expert to assess the value of the business. The court will also appoint a forensic accountant as the court’s Evidence Code section 730 expert when necessary.  These experts are most often Certified Public Accountants with additional experience and credentialing in the valuation of businesses.  

GATHERING INFORMATION:

The expert will request through a “discovery letter” the financial statements, tax returns, and other relevant documents and information related to the business. They may also conduct interviews with the business owner and financial personnel within the business and examine industry and market data.

SELECTION OF VALUATION METHOD:

There are various methods used by an expert to determine the value of a business, such as the asset-based approach, income approach, and market approach. The valuation expert will select the most appropriate method based on the nature of the business and available data.  

1. The Asset-Based Approach determines the value based on the value of the business’ net assets, including tangible assets (such as property and equipment) and intangible assets (such as patents or trademarks).

2. The Income Approach estimates the business’ value by considering its expected future cash flows, applying a discount rate to account for risk, and calculating the present value of those cash flows.

3. The Market Approach compares the business to similar businesses sold recently, using multiples or ratios derived from those transactions.

CALCULATION OF VALUE:

The valuation expert will apply the chosen valuation method and calculate the value of the business based on their analysis. It is not uncommon for one of the spouses to be satisfied with the value and the other spouse to be dissatisfied with the value.  For this reason, there are oftentimes competing experts or a party will retain an Evidence Code section 733 expert to rebut the findings of the court’s Evidence Code section 730 expert.

PRESENTATION OF FINDINGS:

The valuation expert will prepare a comprehensive report outlining their findings, methodology, schedules, and the calculated value of the business. This report is usually prepared for settlement negotiations or trial litigation.

How Can a Family Law Attorney Help in the Business Valuation Process of a Divorce?

Divorce cases involving complex business valuations can be legally intricate, and it is advisable for individuals to seek the guidance of experienced family law attorneys to ensure their rights and interests are protected throughout the process. At Antonyan Miranda, we can support you in the business valuation process in the following ways:

GUIDANCE AND LEGAL ADVICE:

Our knowledgeable family law attorneys can provide you with a clear understanding of the legal aspects and implications of business valuation in a divorce. We can explain the relevant laws in California and help you navigate through the complexities of the valuation process.

IN-HOUSE FORENSIC ACCOUNTING:

Antonyan Miranda employs an internal forensic accountancy department led by a highly qualified and experienced forensic CPA to assist with all financial aspects of a marital dissolution, including business valuation.

EXPERT REFERRALS:

Our attorneys can provide referrals to experienced business valuation experts we have worked with in the past on similar assignments and alternatively provide advice as to which business valuation experts to avoid.

DISCOVERY:

The expert will request information as necessary, but the attorneys for the spouses should also conduct discovery to obtain documents and information that will assist with the valuation of the business and other related issues.  This discovery might include subpoenas and depositions.

By working with the family law attorneys of Antonyan Miranda, you can ensure that your rights and interests are effectively represented throughout the business valuation process of your divorce. We can provide you with expert advice, advocate for a fair valuation, and help you secure a favorable outcome regarding the division of assets. When it is time to move on, an amicable and equitable resolution, saving time, money, and heartache, is the best way to ensure that things change for the better and not for the worse. Call us at 619-696-1100 to speak with one of our Concierge attorneys, or visit us at www.expertdivorcelaw.com for more information.