The path to a smooth divorce begins with an open discussion of your marital assets. In the state of California, a self-owned business that is acquired during marriage is treated as “community property.” During divorce proceedings, the court will make decisions regarding the division of this community property to ensure both spouses are treated fairly. As part of this process, the court may first require a business valuation to determine how much your company is worth.
Common Business Valuation Methods in California
Assigning a value to a business is a complex process that is best handled by an experienced business valuation expert. To arrive at a value that is fair and accurate, most California business valuations measure value based on anticipated income, existing assets, or a comparison to other businesses operating in the same market or industry. Here are some common business valuation methods:
- Capitalized Earnings: The worth of projected profits is calculated based on current earnings and future performance expectations.
- Comparables: A valuation is calculated using the financial performance of comparable businesses in the same industry over time.
- Adjusted Book Value: This method involves tracking assets and liabilities at their fair market value to place a value on a business.
- Liquidation Value: This is the approximate amount of money that would be generated if a business is sold on a rush basis.
There is no single best way to place a value on a California business. The valuer will likely consider a company’s age, industry, size, and asset collection before deciding which business valuation method is the most appropriate.
Choosing a Qualified Professional to Value Your Business
Not all valuation estimates are created equal. While some are comprehensive, well-organized, and rooted in sound methodology, others are sparse and pieced together quickly without using standard procedures. Failure to choose a qualified valuation professional can lead to inaccurate, incomplete, or unfair estimates. You can avoid these pitfalls by having one of the following specialists value your business:
- Chartered Financial Analyst (CFA): CFAs must have a minimum of four years of industry experience and also pass multiple exams.
- Accredited Senior Appraiser (ASA): Becoming an ASA requires at least five years of valuation experience and over 123 hours of education.
- Certified Valuation Analyst (CVA): CVAs must have two years of business valuation experience, pass an exam, and submit a peer review report.
As you evaluate possible options, look for valuation professionals who hold one of these titles and who handle business valuations specifically for divorce cases. They will be less likely to assign a value that is too high, which could lead to an unfavorable distribution of business assets. Finally, it is wise to ask potential candidates how many years of industry experience they have and inquire about whether their valuations have a proven track record of being well-received by the California court system.
The Role of Timing in Business Valuations
The role of timing cannot be overstated when scheduling a business valuation. In most cases, a business valuation takes place on the day of your settlement or your trial date. The valuation should be an accurate reflection of your company’s worth while you are operating it.
If your business is valued prematurely, you are more likely to disagree with the results. You may need to schedule a second report, which can be time-consuming and costly. Likewise, it is never a good idea to wait until the last minute. A reliable business valuation can take time, and delaying a valuation could prolong your divorce proceedings.
Steps You Can Take for a Smooth Valuation Process
If you are like many self-employed Californians, your business is among your largest assets. So, it is important to take the valuation process seriously to ensure you receive your fair distribution of the business assets. Here are some steps you can take to pave the way for a smooth valuation process:
- Step One: Time your valuation with care. Do not rush. As outlined above, the timing of your valuation can be a difference maker.
- Step Two: Organize your documentation. Records such as income statements, payroll data, and inventory reports may be needed.
- Step Three: List any intangible assets. These are non-physical assets such as client lists, trademarks, and brand recognition.
In addition to following these steps, do not be afraid to question the results of a business valuation. Since the valuation will be used to determine the division of marital property, it’s crucial to speak up and question the results if they do not seem accurate. Even better, your attorney can challenge the valuation on your behalf and lobby for a second valuation.
How a San Diego Divorce Lawyer Can Help with Your Business Valuation
The single most important step you can take to ensure fair results is to seek the guidance of a San Diego Business Owner divorce lawyer. An experienced attorney can help ensure your business valuation is undertaken by a qualified professional at the proper time. Here are some other ways a skilled divorce lawyer can support you during a business valuation:
- Fight for your rights during the property valuation process
- Represent you through the valuation process from start to finish
- Explain how California laws impact your property valuation
- Help resolve any property value disputes that may arise
- Overcome legal obstacles that may impede the process
- Pinpoint holes or weaknesses in poorly prepared estimates
- Help uncover any other assets that may require valuation
San Diego’s Most Trusted Divorce Lawyer
Navigating the road of business valuation is not always a straightforward process. But with the help of an experienced divorce lawyer, you can rest assured knowing your business and other assets will be valued and divided fairly.
The Law Offices of Steven M. Bishop are here to deliver the compassionate legal support you deserve during your divorce. For over four decades, we have helped business owners facing divorce save money while obtaining a favorable and fair business valuation. We invite you to contact us today to schedule a free phone consultation. We look forward to helping you secure the best possible outcome in your divorce case.