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Law Offices of David M. Lederman: Family Law Dispute Resolution Experts

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The Role of Business Valuation in High-Asset Divorce Cases

by | Nov 30, 2023 | Finance and Divorce, High Net Worth Divorce

When divorcing in California, you are likely to hear the term, business valuation. This is a defined process and set of procedures used to objectively estimate the economic value of a business to determine fair market value so that property division in divorce is fair.

If you are seeking business valuation in high-asset divorce in California, talk with an experienced Divorce lawyer to get your questions answered today.

Understanding the Role of Business Valuation

California is a community property state. If there is no prenuptial agreement stating otherwise, the laws in California are called community property because shared property acquired during a marriage can be divided 50/50 between spouses.

In general, a business valuation helps determine the value of a business. The process is conducted by forensic accountants or business valuation experts. It considers historical data such as client purchases, income, and expenses as well as projected future revenues and expenses. 

Questions About Business Valuation in California

In divorce proceedings, many lawyers rely on expert professionals to provide qualified business valuations. The value is that this enables parties to stay focused on having a fair and amicable divorce. 

You may have questions that a business valuation can answer. These often include: do both spouses share ownership in the business? Does one spouse want to buy the business? Do both spouses intend to continue running the business? How much is the ownership of the business worth?

While these questions are swirling around, it is very challenging to stay focused and level-headed. This is why qualified business valuation is so critical to keeping a clear head and increasing the likelihood of an amicable divorce.

Methods of Business Valuation In California

There are several methods that a business valuation uses to determine a business’s value. 

The income approach uses the income of a business to convert the anticipated value into a current dollar amount. The appraiser identifies the business’s worth based on the present value of the income it is expected to generate in the future. 

The market approach compares comparable businesses to determine the sales price for similar businesses.

The asset approach evaluates the value of assets compared with liabilities. In determining the business valuation in high-asset divorces, these and other methods are used. As you can imagine, the conclusion of these methods may vary and be a subject of dispute. 

The Value of Fair in a Divorce Settlement in California

According to CPAs, forensic accountants, and financial advisors, information about actual fair market value has an additional benefit. There is a possibility of an agreement on a fair and reasonable price. The likelihood of agreeing on a business valuation can open the way for an amicable and equitable divorce settlement. 

Every Business is Unique – How to Avoid Guessing

Many factors impact the value of a shared business in a marriage. In many instances, one spouse may have been more involved in the running, management, and ownership of the business. The less involved spouse may not realize the details of customers, competition, and continued operation.

Leaving this up for grabs or guessing can create a roulette wheel of finger-pointing and disagreement. The alternative is hiring qualified professionals to determine the accurate value of a business. 

Who Does a Business Valuation During a California Divorce?

Spouses during a divorce have several options. The first is to try to figure things out on their own. This do-it-yourself approach is risky. Either or both spouses may overvalue or undervalue the company. In addition, neither party may have training in forensic accounting or experience in business valuation.

The second option is to hire a joint forensic accountant. This may seem appealing to save money, however, this can also be difficult as the single viewpoint may result in more disagreement over value.

The third option is to hire two forensic accountants to present the valuation and clarify the data in support of the valuation. This can be the most direct path to making an informed and reasonable agreement on value.

Talk to an Experienced California Divorce Attorney

If you are concerned about business valuation in high-asset divorce and how this may affect your divorce, the Law Offices of David M. Lederman is here to help. We are here to guide you through the difficult divorce process.

If you have any questions about business valuation in a high-asset divorce in Antioch, Moraga, and across Contra Costa, Alameda, and Solano Counties, please get in touch. We are happy to talk with you. Call 925-522-8889 or send an email to set up a consultation. We are happy to discuss business valuation in a high-asset divorce or other divorce-related issues in California.

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