Petaluma Attorney to Help With Business Valuation Issues
Many couples in Petaluma, CA today own businesses, whether together or separately. While this is the dream of many, a business can become problematic in the event of divorce. On its own, divorce can be stressful, complicated, and messy. When a business is involved, things become more complex and uncertain. Having a business valuation in divorce is critical to the outcome and future success of the business. Those in need of skilled legal support may want to consider contacting an attorney to help with business valuation issues at Wine Country Family Law, P.C. at 707.669.0841.
Why a Business Valuation Is Important
California is a community property state according to California legislature, which means each spouse is entitled to equal distribution of assets, property, and liabilities in a divorce. A business that was formed during the marriage may be divided equally depending on the court’s decision. Couples do have the ability to come to an agreement so that one spouse retains control over business decisions. Regardless of whether the court decides or spouses agree on the distribution of the business, it is helpful to work with a Petaluma family law attorney experienced in business valuation issues.
Ultimately, a business valuation lets the business owner know how much their business is worth and assigns a cash value. This simplifies the process when it comes to the division of community property.
Common Questions Regarding a Business Valuation in Divorce
The process of valuing a business can be complex and there are several things to consider. For example:
What Is the Business Valuation Date?
Generally speaking, assets are valued at the time of trial or settlement. However, there are many reasons to have the business valued on the separation date or other earlier date. A Petaluma divorce attorney knowledgeable in business valuations will file a motion with the court in these circumstances requesting an earlier valuation date.
What Is the Intangible Value of a Business?
Another component of a business valuation in divorce is the business’s intangible value. Intangible value is value that cannot be touched or seen in the physical sense. In a business, intangible value may apply to the goodwill of the business, a trademark, patent, or technology-related assets. Goodwill in a business refers to its good name, recognition value, and business reputation. Goodwill is enhanced for businesses in a growing industry with solid financial ratios. In California, goodwill is subject to community property laws and is considered a marital asset.
What Documents are Necessary for a Business Valuation?
For a business valuation expert to complete a valuation of the business, there are several documents that may be necessary. The documents provided depend on whether the business is a partnership, private practice, corporation, sole proprietorship, or other entity. Examples of documents that may be needed include:
- Income statements and balance sheets
- Tax returns
- Leases
- Inventory reports
- Fixed asset/depreciation
- Payroll
- Accounts payable/receivable
- Business plans
- Equipment and real estate appraisals
- Business projections and forecasts
- List of intangible assets
Analysts usually require three to five years of financial statements and two years of tax returns. In certain cases, you will need to provide three years of tax returns. Financial statements include a cash flow statement, income statement, and balance sheet. Those with questions may want to consider reaching out to Wine Country Family Law, P.C.
Valuation Approaches
With a business valuation in divorce, an expert evaluates a business by choosing an approach and a method. These include the asset, income, and market approaches.
Asset Approach
The methods below grant value analysis determined by the cost to purchase a similar business:
- Book value
- Adjusted net asset
- Liquidation
- Excess earnings
Income Approach
A business valuation professional can determine the current value of future business potential based on the income approach using one of these methods:
- Discounted earnings
- Capitalization of earnings
Market Approach
In some cases, a business valuation expert may use the market approach to arrive at a value. This approach is based on current sales of comparable or similar businesses. Methods include:
- Discretionary earnings
- Public company
- Gross revenue
- Company transactions
All of this can seem overwhelming and complex, and it is. A Petaluma attorney versed in business valuation divorce issues may be able to help you navigate the process and provide legal guidance.
Potential Mistakes in Conducting Business Valuations
People who own businesses and are divorcing need to, with the help of their divorce attorney, ensure errors were not made in the business valuation process. There are some common mistakes that can have an impact on the outcome a case. Business owners know that with so much at stake, there is no room for error. These mistakes include but are not limited to:
- Failure to apply minority discounts
- Neglecting to include all business assets/liabilities in the business valuation
- Using a business valuation method that is not accepted by California courts
- Failing to account for any temporary or short-term business changes
- Not using the correct standard of value (fair market value, investment value)
- Failure to recalculate the values to avoid mathematical errors
Questions to Ask a Business Valuation Expert
There are some questions business owners should consider asking a business valuation expert to ensure they have the experience, skill, and knowledge to perform the job. These include:
- Does the valuation adhere to accounting principles that are generally accepted?
- Did they visit the business site and if so, when?
- Has the business valuation expert ever been excluded or had their testimony excluded in court?
- Have previous business valuations stood up in court, and have any been significantly changed by the court’s decision?
- What percentage of the expert’s time is devoted to providing expert testimony in court?
Consider Visiting with Wine Country Family Law, P.C.
The business valuation process is an important and complex piece in a divorce. According to California Courts property in a marriage is anything of value. This includes businesses that were created during the marriage. Those in Petaluma, CA in need of skilled legal guidance and support should contact a family law attorney at Wine Country Family Law, P.C. today. Call 707.669.0841 to schedule your consultation now.
