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Understanding business valuations in a California divorce

One of the most complex problems faced by divorcing couples in California is the valuation of businesses owned by either or both spouses. California’s community property rules require an equal division of all assets acquired during the marriage, but making this determination when an asset is an operating business can be difficult. Even if a couple is attempting to negotiate their property division, a competent business valuation can provide crucial assistance.

Business appraisers can belong to several organizations, for example, the American Society of Appraisers or the Institute of Business Appraisers. These organizations follow the Uniform Standards on Professional Appraisal Practice. Regardless of the professional category to which a business appraiser belongs, the goal is the same: using reliable and uniform methods to establish the value of a business asset.

One way appraisers value a business is through the income approach, in which the benefits investors in the company would receive are compared to the risk they take in investing. Another way to value a business is through the market approach, in which the business being appraised is compared to completed sales of similar businesses. Finally, businesses can be valued using the asset approach, in which the business’s liabilities are subtracted from the fair market value of the assets of the business.

Appraisers are usually hired by the lawyer representing one of the spouses, and the lawyer generally provides specific directions about the nature and scope of the appraisal. The client is given the responsibility for providing the information that is used by the appraiser. A qualified appraiser can be an indispensable part of the divorce team.

Source: Allied Business Group, “10 Things To Know About Business Valuation,” accessed on June 12, 2017