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How Business Valuation Affects Divorce in California
It’s always complicated to divide assets when a couple goes through a divorce in California. The only thing that makes the matter more complex is when a business is involved. If you’re navigating this stressful process, you will need expert legal guidance. Just contact WGS Law to schedule a consultation today. We can discuss business valuation and more.
What are the Basics of Business Valuation?
Business valuation is the process of determining the economic value of a business. It involves looking at more than just the profits. Instead, it requires a thorough analysis of assets, liabilities, market conditions, and even future earnings potential.
The most common approach to business valuation includes:
1. Market Approach
This method compares the business to other similar companies within the same industry. Their recent sale prices and financial performance are analyzed to estimate the business’s current market value.
2. Income Approach
This method calculates a business’s value based on its expected future profits. It evaluates past financial undertakings to project future profits, using tools such as discounted cash flow analysis to estimate present value.
3. Assets Approach
This method calculates the total value of the company’s assets (minus the liabilities) to determine net worth. It’s particularly used for asset-heavy businesses like manufacturing or real estate.
Why Business Valuation May Look Different in California
California follows community property laws, in which the assets acquired during the course of the marriage are divided equally between spouses. This includes businesses that started or grew during the marriage, regardless of which spouse primarily managed the business.
This implies that even when the business was established before the marriage, it will be divided amongst the spouses if:
- Its value increased during the marriage due to shared efforts
- Marital funds were used to grow the business
- One spouse contributed directly or indirectly to the business’s success
How a Business Is Valuated During a Divorce in California
The valuation process during a divorce in California can be lengthy and time-consuming. It involves various steps, such as:
1. Hiring an Expert
The most important part is hiring professionals who are experienced in business valuation. You will need a financial expert and the right attorney who can help you understand the community property laws and various valuation methods.
2. Gathering all the Information
The experts you hire will gather all the financial documents related to the business, such as balance sheets, tax returns, contracts, etc. These will help determine the business’s value accurately and fairly.
3. Calculating the Value
Depending on your situation, one of the valuation methods will be selected to determine the business’s value. The decision depends on your business type, financial performance, and industry trends.
4. Presenting the Findings
After the valuation is complete, all the findings will be compiled in a detailed report. It will be used in negotiations, settlements, or court proceedings if needed.
Hire a Trusted Attorney
Business valuation during a divorce in California is a complex process. You need the right attorney by your side to ensure a fair and accurate asset division. Just contact WGS Law and schedule a consultation today to get started.
Flora Garcia-Sepulveda
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