Southern California Family Law

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Southern California Family Law

How to Value a Southern California Business During a Divorce

Uncategorized - October 5, 2021

How to Value a Southern California Business During a Divorce

One of the biggest issues in any divorce case is the distribution of property between spouses. When one spouse owns a business, that company must be valuated as part of the property division. However, issues often arise in properly valuating a business, and you need a divorce lawyer with experience in these matters to assist in your case. Using the wrong valuation method could have a significantly detrimental impact on your property settlement. 

The knowledgeable California divorce lawyers at the Simpson Law Group can help with this and all other types of legal matters related to your divorce. If you would like to learn more, contact our office today.

The Asset Approach

The first method for valuing a business in a divorce is through the asset approach. This is the most straightforward method of valuation. You take the assets minus the liabilities to get the value of the company. Assets include both tangible and intangible items, including infrastructure, inventory, intellectual property, and accounts receivables. This approach has its drawbacks, including how to value certain assets and not including any unrecorded assets or liabilities. 

The asset approach works best for small businesses that do not have much complexity.

The Market Approach

The second method for valuing a business is using the market approach. This approach is similar to how real estate brokers value residential property by looking at businesses of similar size that have been sold recently. However, there are drawbacks to using this method for valuing a business if there are no other companies of similar size that operate in the same or similar industry to use in comparison. 

The market approach works best when there are a number of other businesses similar to it in the geographic and industrial space.

The Income Approach

The final method for valuing a business in a California divorce is through the income approach. This method of valuation uses formulas and historical information about the company to predict expected cash flows and profits in order to value the business for a divorce. These formulas consider the risks of return for the particular industry as well as future benefits for the company. This is the most common method utilized by California attorneys and business professionals to value businesses in a divorce. 

The income approach works best for more complex business entity types and for businesses with the historical data needed to properly use the income formulas. If you are interested in learning more about each method and which one might be best for your case, talk to our office today.

Contact an Experienced Southern California Divorce Attorney Today 

Would you like to learn more about how a business might be valued in your California divorce case? Determining which valuation method to use could have a substantial impact on your divorce settlement. Contact us today at the Simpson Law Group to schedule a consultation with one of our experienced divorce lawyers.

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