business valuation in divorce kaspar & lugay llp

How California Manages Property and Business Valuation

Property division can quickly become the most contentious part of a divorce. Even if you and your partner are otherwise amicable, dividing your assets can be stressful and even traumatic. In divorces that involve a large number of assets, this problem only gets worse.

This conflict doesn’t have to happen, however. There are some clear guidelines in place for how California divides property between spouses. If you are an entrepreneur and want to protect your business, at Kaspar & Lugay we are dedicated to helping you receive an equal and equitable property division while still protecting your business.

The Importance of Marital vs. Separate Property Ownership

There are three types of property ownership for married spouses in California: separate property, marital property, and “commingled” property. Depending on under which category of ownership an asset falls, we can help you divide the property in one of three ways.

Separate property is the simplest type of property ownership. Separate property is wholly owned by one of the spouses, with the other partner having no claim on it. Separate property is generally property that a spouse brought into the marriage. A car or home owned before the wedding is a good example of separate property.

Marital property covers any property acquired after marriage. Everything from savings that combines both spouses’ incomes to homes purchased after the wedding to businesses started after marriage counts as marital property. This is the property that the spouses will split in the event of a divorce.

Commingled property is any property that includes both marital and separate property. For example, businesses begun after marriage but funded through separate assets may also be considered commingled property. This type of asset may be challenging to divide fairly without input from experienced divorce attorneys.

The difference between marital property and separate property is critical. California is a community property state, which means that any marital property is supposed to be divided equally between divorcing spouses. How this is achieved varies from case to case, however.

How the Legal System Handles Community Property

Community property must be divided evenly between divorcing partners unless both partners agree to a different split. As a result, in California, the valuation of property in a marriage is critical during the divorce process. Assets can be divided into two major categories for most people in the Bay Area: real and personal property, and businesses.

Evaluating Property

There are dozens of individual types of property. Real estate, vehicles, investment accounts, RSUs, pets, and the minutiae of daily life all count as property that needs to be evaluated for a fair split. The goal of these evaluations is to find a fair market value for the assets that count as marital property. The fair market value is what determines the 50/50 split.

While smaller property like personal possessions is unlikely to be of financial concern, it’s not unusual for larger assets to fall victim to disputes. For assets such as investment accounts that pay dividends or any type of real estate, working with an attorney that is experienced in high-stakes business negotiations can ensure that the valuation is truly fair and protected from these disputes.

Once the full fair market value of every significant asset is known, the task is to divide it equally. In high net worth divorces, this may be best accomplished through mediation instead of through the court system. This allows spouses to negotiate and discuss their options. The court system, on the other hand, will hear arguments and then decide without further input. At Kaspar & Lugay, we have the experience in negotiation that can help make mediation the smooth, low-stress alternative to using the court system for asset division.  

Evaluating Businesses

Our experienced business law attorneys can help you protect the value of your company during the business valuation process, as well. Businesses are evaluated differently than other types of property. Because of the intangible nature of most parts of a company’s value, the process can be complicated.

There are four factors that California courts must consider when handling business valuations in the divorce process:

  • The business’s fixed assets
  • The business’s intangible assets, such as accounts receivable
  • The business’s reputation and goodwill
  • The business’s liabilities and outstanding debts

According to the IRS Ruling 59-60, courts should in almost every case also consider factors including:

  • The industry of the business
  • The business’s history, including ownership sales and transfers
  • The national, local, and industry-specific economic outlook
  • The business’s capacity for growth
  • The stock market price of any publicly-traded companies in the same industry
  • If applicable, the dividend capacity of the business

All of these factors in combination lead to the final determination of the value of the business.

Dividing Property

When all assets, including businesses and real estate, have been evaluated, then the task of property division can begin. If a company is genuinely considered community property, then it may make up a significant portion of the assets in a marriage. As the business founder or owner, it’s only natural to want to retain control over your creation.

To do this, you may need to work with a qualified business law attorney to handle the fine details. This can help you maintain full ownership of the business, even if it makes up more than 50% of marital assets. An experienced attorney can help you find compromises and divisions that satisfy both parties. When it comes to reaching an equitable conclusion to your divorce, this background is invaluable. If you’re considering getting a divorce and you’re concerned about property division, reach out to our trial-proven attorneys today for a consultation.

At Kaspar & Lugay, we understand that ending a marriage is stressful for many reasons, with finances only playing a small role. Our goal is to help you navigate the difficult time of divorce while keeping your best interests in mind. Contention in property division can be kept to a minimum with the right experience; let us help you complete the process as quickly and painlessly as possible.

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