Business Valuation

Business Valuation

Any business you build during your marriage is considered community property in San Diego. It means that if you and your spouse decide to divorce, the business you own will be subject to property division, and your spouse will be entitled to receive half of its value under the state law. It’s necessary to note that if you are an entrepreneur or business owner in San Diego, you have more at stake during the asset and property division process than non-business owners.

If your divorce is imminent, you must ensure that your business interests are protected and that you receive a fair and just outcome during the divorce proceedings. That’s where our San Diego divorce law firm comes in. At Moshtael Family Law, we have the skills, resources, and experience to help you navigate this tricky terrain and determine the best way to handle your situation.

We have the resources and the expertise to guide you through this process successfully and ensure you get the best possible outcome. Reach out to us today for a free case evaluation with our San Diego business division attorneys.

Considerations for Divorcing a San Diego Business Owner

If you’re contemplating a divorce or are in the process of divorcing a business owner in San Diego, there are some important considerations to keep in mind:

• Remember that a business may need more than 50% of its total value to stay afloat: If you ask for the entire 50% of the business in a payout during the divorce, it could impact its ability to function normally. Under certain circumstances, the company may not survive such a severe loss.
  Moreover, asking for your half of the business right away could adversely affect your spouse’s capacity to pay spousal/child support in the future. Therefore, when negotiating for your share of the business, it’s prudent to consider alternatives to a payout. It can help you receive your fair share without harming the company or your spouse’s financial soundness.
• Be vigilant as your business owner ex-spouse may try to deceive you: To protect their own interests, your business owner ex-spouse might use tactics like reporting lower income or hiding assets in protected accounts to keep community property away from you during a divorce.
  Sometimes, business owners do things to protect themselves during a divorce that are not fair and, sometimes, are even against the law. Based on this, robust and dependable lawyers know what to look for when business owners try to hide or shield assets. They can spot the warning signs and help ensure you get what you’re entitled to.
• Business arrangements can be complicated, especially in high asset divorce cases: When dealing with complex business arrangements, it’s often necessary to hire a forensic accountant to help determine the value of the community property in the business. Getting the right legal and financial support during a San Diego divorce can help you understand your rights to community property and ensure that you get a fair agreement for dividing your assets based on your circumstances.

Can I Prove That My Business in San Diego is Separate Property?

During a divorce, the San Diego court will consider two types of property when dividing assets:

• Community property – In San Diego, community property refers to anything that a couple has acquired or owns during their marriage, except for gifts and inheritance.
• Separate property – Anything acquired before getting married/entering a domestic partnership is categorized as separate property. Inheritance and gifts received during the marriage are also the same.

When a business owner is filing for divorce, they can use one of the following to prove that the business is separate property:

• They can use a statement in the form of a deed/other documentary evidence.
• A written agreement between both parties can serve as proof that the property is separate, and not community property.

The latter option is typically in the form of a post-nuptial agreement in which the spouses mutually agree to the future division of their assets.

If you want to protect your business during a divorce, consider drawing out a pre-nuptial agreement. Taking this into account, you and your to-be spouse must record and sign it before marriage. This is the quickest and most straightforward way to safeguard your business in the event of a divorce.

During your divorce, our attorneys at Moshtael Family Law who specialize in business division and valuation, can assist you in contesting a pre-nuptial or post-nuptial agreement. They can also advise you on the validity and strength of your current agreement.

Methods of San Diego Business Valuation

In San Diego, there are many types of businesses, so the parties will have to figure out the right way to value the business for their situation. Here are some standard methods to value a business:

Fair Market Value

To assess the business’ fair market value, both parties need to determine how much the business could sell for if there is a willing buyer and seller on the open market. It’s similar to a vehicle or house valuation process and is the best way to estimate how much you could sell it for. This valuation approach also applies to some businesses.

Investment Value

When calculating investment value, it is essential to determine the amount investors would be willing to pay to acquire the business and earn a good ROI. This approach is typically used when considering the business’ future growth prospects and potential profitability.

Asset Value

A business’s asset value is its assets’ total value without factoring in aspects like goodwill. Goodwill refers to the advantage a business has in earning higher profits due to factors like its reputation, location, unique products or services, years in business, or other similar factors when compared to other businesses. Goodwill is commonly used to value certain businesses, particularly professional practices.

How are Business Assets Divided in a Divorce in San Diego?

The question of how business assets are divided during a divorce ultimately depends on the specific situation of each case. Sometimes, couples can come to a peaceful agreement and avoid any unpleasant division of business assets. If spouses cannot agree, a judge will make the final decision.

Usually, spouses should reach an agreement as it gives them more control over the divorce outcome. Sometimes, couples are unable to come to an agreement about who gets which business liabilities or assets. When splitting business assets, the judge considers multiple factors. In addition to the community or separate property status of the business, San Diego courts will also take into account:

• How long the business has been in existence
• Each partner’s ownership percentage
• Each spouses’ role in the business’ operations
• The value that each spouse brings to the business
• How the parties will divide the remaining property and assets
• Whether one partner has the capacity to buy out the other

The way property is divided during divorce can differ from case to case, and the court has the final say on how business assets will be divided. It’s necessary to be careful and thoughtful when going through this process, and some methods can make property division easier.

Dealing with divorce and business ownership in San Diego can be very complex. Getting divorced as a business owner or entrepreneur can be complicated, but seeking the guidance of an experienced attorney at Moshtael Family Law can help ensure all issues are handled carefully and strategically.

Buy-Out

In case of a divorce, if both spouses agree, then one spouse can buy out the other spouse’s share of the business. For example, if each spouse is to receive half of the business, one spouse can buy the other’s share if both parties agree.

To settle for a buy-out, you must determine the asset value and agree on a clear-cut amount first. The buy-out amount is generally higher than the business assets’ initial value. In a business buy-out agreement, the potential for revenue generation is usually considered, because the seller would be giving up their stake in the business. Therefore, the buyer may consider the business’ present value and revenue generation potential and put forth an offer that considers both.

Co-Ownership

If spouses are able to work cohesively, they can continue to co-own their business even after the dissolution of marriage. Stemming from this, working shoulder-to-shoulder as equals in a business post-divorce is rare because it can be incredibly challenging for former spouses to maintain trust levels and professionalism in their interactions.

The other option is that, as a formality, both parties can maintain co-ownership of the business. Sometimes, one spouse is more actively involved in the business’s day-to-day operations. That person can choose to compensate the other spouse for the income generated by the latter’s share of the business. They can do this by writing a check within a specified timeframe for the agreed-upon amount.

Selling the Business

In some situations, selling the business and dividing the proceeds in a balanced way between the two parties might be the best course of action. Furthermore, conflicts may develop over the business’ worth, the ability to find a suitable buyer, and market conditions. For instance, if the couple wants to liquidate their business during a recession and their divorce is still pending, they might not agree on the right time to sell.

There are ways to avoid using these options when going through a divorce. A knowledgeable San Diego divorce lawyer can assist you in managing the process of dissolution of marriage while being a business owner. A competent lawyer can evaluate your situation and help you choose the most suitable approach to achieve the best possible outcome for your divorce.

How Our Business Valuation Lawyers in San Diego can Help You?

When determining the worth of a business during divorce, there are multiple factors to think about, and they can be challenging to understand. Our attorneys at Moshtael Family Law will address various issues and considerations to provide you with proper advice, which may include the following:

• When will the business be valued? This is an important question to consider during divorce proceedings. Typically, all assets will be valued during settlement or trial. Based on this, in some cases, it may be necessary to request that the business be valued at an earlier date, such as the date of separation.
• What if the value of the business drops or rises significantly after separation?
• What paperwork is required for the specialist to assess the company’s worth? And how can you acquire those documents?
• Which value standard should be used, and who will make the decision? Different standards can be applied in business valuation. There is Fair Market Value, Investment Value, and Asset Value.
• What premise should be made for the value of the business? Should we value the business as if it will continue operating (Going Concern) or as if it will be sold in parts (Liquidation)? This is a crucial decision, and in divorce cases, the Going Concern premise of value is typically used.
• Another essential consideration is whether one spouse has full control of the business or if there is a shared level of control. Does the spouse who operates the business own a majority or minority of the corporation’s shares? For a partnership, what percentage of the business does the spouse own?
• How do you determine the value of the business’s intangible assets, such as its reputation or brand name? One example of an intangible asset is the goodwill of the company.
• What is the correct valuation method to use? Market Approach, Capitalized Earnings, Discounted Cash Flows, Asset (cost) Approach,
• Excess Earnings Method, Guideline Public Company Method, or Transaction Method?

Mistakes to Avoid in Divorce Business Valuation in San Diego

1. Using the Wrong Valuation Method

In divorce cases, the methods used to calculate a business’s value may not always be fair market value and discounted future earnings. Private companies are often difficult to sell, and they may have rules prohibiting the sale of business interests to an outsider. In such cases, the fair market value does not include the reduced price for the difficulty of selling such companies.

Second, discounted future earnings are hardly ever appropriate since community property can only be created during the marriage and cannot be the product of post-separation efforts by either spouse.

2. Failure to Include All the Assets and Liabilities of the Business

It’s necessary to ensure that you and your valuation experts consider all relevant business liabilities and assets. It may seem straightforward. Taking this into account, several significant liabilities and assets are frequently overlooked in a divorce.

For example, the spouses may be intent on the business’ goodwill value (which can be quite a speculative and complex calculation). In the process, they may fail to factor accounts payable, office equipment, or cash on hand in the final calculation.

3. Failure to Adjust For Unique Events and Risks

Your spouse might want to take the previous year’s record earnings and use that to determine the business’ value; that may seem the most straightforward approach for them. Moreover, several unique events might exist that must be included in the business valuation model, and expert appraisers must be aware of them.

For instance, your company may have bagged a one-time contract for a major event unlikely to occur again. Similarly, increased risks associated with operating specific kinds of businesses should be accounted for.

Therefore, while assessing assets or business interests during divorce proceedings, all parties must consider all factors affecting the valuation of these objects. The final figures will typically vary, but they should be computed with all essential information in mind.

Can Your Business in San Diego Be Protected Well in Advance of a Divorce?

These pointers for business owners can help you safeguard your company from any divorce-related issues:

• Maintain precise and exhaustive company records. Keep personal and business finances entirely separate.
• Obtain an impartial, accurate, and precise business valuation in advance to ensure that your spouse does not receive more than their fair share.
• What is the correct valuation method to use? Market Approach, Capitalized Earnings, Discounted Cash Flows, Asset (cost) Approach, Excess Earnings Method, Guideline Public Company Method, or TransactionYou may need to negotiate additional assets in your divorce negotiations to retain ownership of your portion of the business. As compensation for half of the business, you might have to relinquish some real estate or your retirement account.

Our Business Valuation Divorce Lawyers in San Diego will Fight Hard to Protect Your Rights

Before filing divorce documents, a business owner or entrepreneur must consult with a knowledgeable divorce attorney. If you are concerned about your ex-spouse gaining ownership of your business, only skilled legal counsel can guide you through this highly complicated process.

Moshtael Family Law is a prominent and trusted divorce and family law firm in San Diego. We are happy to provide a free case review and consultation to address your concerns regarding business division and valuation in your divorce. Call us at 619-639-9898 or reach us online.