Family Law Property Disputes

Valuing a Business

In today’s society, it is common for either one or even both spouses to possess a share of some sort of business. In some cases the business was built together, built partially before and during the marriage and sometimes completely before the marriage. Unfortunately for those who are considering divorce, a spouse’s ownership interest in a business is considered an asset subject to distribution of property; that is, the division and distribution of each spouse’s’ property. Therefore, when a couple is undergoing a divorce, there are many ways in which interest in a business can affect the case. For example, any financial interest in a business must be disclosed from the outset through preliminary disclosures. Additionally, if the spouse’s income is derived in whole or in part from the interest in the business, then various company documents are subject to discovery and used to determine the spouses’ income for support purposes.

Generally, the Judge in the family court will have extensive authority when deciding what is reasonable and fair when dividing the property or other assets. The valuation of a business comprises of several aspects. These include, but are not limited to:

• The nature of the business
• The economic outlook in general as well as specific to the industry of the business
• The earning capacity of the company
• What the company owns (e.g. inventory and equipment)
• What the company owes
• The company’s total revenue
• The formula used to decide the company’s value
• The valuation period

Business valuation can be an exceptionally complex procedure which typically requires the retention of an expert. Though a business valuation can seem costly, the outcome of a proper evaluation can result in substantial savings and/or benefit to the client’s interest in the business or asset depending on the circumstances of the particular case.

Understanding the Business’ Assets and Debts

A business valuation includes an understanding of the following:

• The business’ tangible property such as
  • Any office equipment
  • Business inventory
  • Machinery
  • Other investments
• The business’ intangible property such as
  • Trademarks
  • Patents
  • Customer relations
  • Brand Name

In some cases these properties will be considered as marital properties and assets and will therefore need to be incorporated in the distribution of property despite any separation of the business value all together. For instance, suppose a spouse had the ownership of a patent before he or she got married, and after marriage this individual began a business that sold the patented product, many regions will demand that the patent be given to the proprietor in the asset distribution. Other regions will demand that the former couple share that patent’s value. Nevertheless, whether or not a patent is allocated to one party or divided amongst both, this patent will still be deliberated in the process of valuing the business for reasons of distributing the business between the former couple.

One of the best methods in understanding the distribution of property, which includes a business’ interest, is to speak to an experienced attorney. The rules and regulations will vary by region and it is important to begin the process correctly, so that it does not become a great expense later. Consult with an experienced attorney who has knowledge of the procedure. He or she will be sure that the valuing of your business is done correctly.

Understanding the Business’ Liabilities

The business’ liabilities can be just as important as the assets it has. Generally, a business’ responsibilities will be in the form of currency, the services the business provides, and the goods the company sells. A business’ worth is often viewed as taking the amount of its responsibilities minus the value of the company’s assets.

Methods of Valuation

There are multiple approaches that could be utilized to place a value on a company. Two of the most frequently used approaches include:

• Book value method
  • The book value approach considers the worth of the property and/or its liabilities as they are recorded on corporate books. Usually, it calls for the original cost of the property.
• Market (or earnings) approach
  • The market approach considers the market value and/or the earning capability of the company.

Property Disputes: Obtaining Legal Support

Going through a divorce is a difficult matter and the situation will become even more complex if there one or even both spouses own a business. If you or someone you know if going through a divorce and there is a need to go through the process of valuing a business, consult with an experienced attorney who can guide you through the process. It is important to note that the court and the Judge do not value assets, but rather the parties and their legal team will work to have that done so that the court can simply distribute the value of the total assets.

If you or someone you know is going through the process of a divorce, it is important to understand the elements behind the valuing of a business. The attorneys at the Knez Law Group are experienced in the area of property disputes in family law and in particular with business valuation.

Matthew Knez

Matthew J. Knez graduated from the University of Redlands in California with a Bachelor of Arts degree in Creative Writing. He then pursued his law degree at the University of La Verne College of Law in Ontario, California, where he earned various awards, including the CALI Award in Torts, and was on the Dean’s List. During his time in law school, Mr. Knez was a member of the Justice and Immigration Clinic, working with individuals seeking asylum in the United States from countries where they faced persecution or threats of persecution. Additionally, he was an Associate Editor for the Law Review and published an article on California family custody move-away cases. Learn more here.