Certified Family Law Specialist, State Bar of California, and Board of Legal Specialization

In California, business assets are typically a part of the marital community property. That means, if divorcing, division of property can be a lot more complex. There are many factors that go into the division of property generally and business assets specifically.

At Hoffer Family Law Firm, we help our clients navigate this difficult time in their lives, especially the property division aspect of the divorce. Community property means all marital property is pretty much split half and half. But it’s a little more complicated than that, especially when considering businesses.

Here’s an overview of what to expect if you have business assets and are in the middle of a divorce in Agoura Hills. If you still have questions or want to discuss your divorce with a Certified Family Law Specialist, contact our divorce lawyers today.

Divorce & Business Assets: Factors to Consider

Businesses that are either wholly or partially owned by at least one of the spouses is property that may be subject to division and distribution during a divorce. The process of distribution is complicated when the business was established prior to marriage but it benefited from the other spouse’s contribution.  The following factors will play a large role in how the business is divided and distributed:

  • What type of business is it?
  • When was the business established?
  • Who started the business?
  • How much did the other spouse contribute to the business?
  • What financial interest does the other spouse have in the business?
  • Who will have control or ownership of the business after the divorce?

For example, when a business is a private practice, then this has a big impact on who gets what and who controls the business after the divorce. A private practice includes anything like:

  • doctor or medical practice;
  • law practice;
  • therapy or counseling practice; or
  • any other practice or service where the business is dependent on your education.

In these types of cases, you are the sole reason the practice exists. Your spouse may have participated to act as a manager or assistant (or vice versa), but the private practice can only exist due to the one spouse’s expertise. As such, the business will be evaluated, but the one who is the actual doctor, lawyer, therapist, etc., will retain control.

As for businesses established prior to marriage, these are typically separate property and would not be subject to distribution based on equal shares. If the other spouse, however, contributed in any way, either financially or otherwise, then the value of that participation will be considered and compensated. The problem is coming up with the value.

Valuation of a Business During a Divorce

Valuing a business is important to ensure just and fair distribution during a divorce. But valuing can get complicated the larger the asset is. There are three approaches to business valuation:

  1. The asset approach, which calculates the value using the following formula: assets (tangible and intangible) – liabilities = value.
  2. The market approach, which calculates the value by comparing the business to similar businesses that have been sold recently.
  3. The income approach, which calculates the value by analyzing historical information and data to predict expected cash flow and profits – this is the most comprehensive approach but also the most complicated approach.

When a business is undervalued, it can result in unfair distribution of marital property.

Distribution of a Business During a Divorce in Agoura Hills

There are typically two ways a business during a divorce is distributed. These two types are:

  1. the Pereira method; and
  2. the Van Camp method.

These methods are based on state family case law. They are described in brief below, but you must keep in mind that there are many other factors, like those listed above, that will matter in the overall distribution and future control of the business.

The Pereira Method

This method values a business according to the efforts each spouse makes to the business during the marriage. Any increase in the value of the business during the marriage is also a part of the community property. A simple example of this method is described below.

When a couple married, the business was worth $200,000, and at the time of divorce, the business was worth $400,000. In this scenario, the $200,000 is separate property belonging to the spouse who initially owned the business. The $200,000 increase in value is marital property and will be split equally. The owner-spouse can buy out the other spouse or arrangements can be made through other assets – it all depends on the circumstances.

The Van Camp Method

This method is used when the growth of the business is a result of external factors and not entirely the efforts of the spouses. When there are other owners of the business, then they are also contributing to the value of the business. In this case, only the efforts of the owner-spouse during the marriage are considered marital property. A simple example of this method is described below.

A business is valued at $100,000, and there are two owners. One owner married, and over the course of the marriage, the business increased to a value of $400,000. At the time of divorce, the separate property is $50,000 (the owner-spouse’s share of the business before marriage), and the marital property is $150,000 (the company increased in value by $300,000, and only the owner-spouse’s share is included in marital property, which is half).

Contact an Agoura Hills Attorney to Learn More About Business Assets in a Divorce

To ensure that your business assets is properly divided during an Agoura Hills divorce, both parties must be willing to be transparent and to disclose accurate information about the company’s operations, including debts and revenues. First, it will have to be decided who is entitled to what property. Then the value must be accurately determined. Finally, the property must be divided and distributed.

As you can see, it’s a complicated, emotional process. Having the right Certified Family Law Specialist help you and guide you through it can make all the difference to a more equal adjust division. Contact Hoffer Family Law today.

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