Business Valuation in Divorce/Photo by Mikhail Nilov from Pexels
You Own Your Own Business
One of the most complicated issues in divorce is property division. And if you own your own business, forget about it. You’ll need to hire a forensic.
Community Property
Why? Because in a community property state like California, your spouse is entitled to half of all assets and debts acquired during the marriage. This includes a business you started during a marriage, as well as a business you started prior to the marriage that continued during during the marriage.
Your spouse can always waive their interest. Strangely, it is rare for an ex to voluntarily waive anything.
Valuing the Business
Because your ex is entitled to half, we’ll need to know how much it’s worth – we’ll need to value it.
3 ways to Value
There are 3 methods to valuing a business:
Income-based approach
Asset-based approach
Market-based approach
Even if I were to able to explain in layman’s terms what these mean, I am not a forensic accountant. I am an attorney. You will need to hire a forensic accountant/
Forensic Accountant
What do forensic accountants do? Read this article.
If You Own a Business, Get a Prenup Prior to Marriage
If you own your own business, get a prenup.
In a divorce, businesses are often valued for more than they can be sold for.
In fact, even if YOU are the business, and nobody will buy your business, it can still have a value. Why does this matter?
It matters because in a divorce, you are paying for ALL of the attorneys, experts, forensics, and they are NOT cheap.
Typically, one side is paying one expert to value the business high. For example, my solo law practice may be valued higher than 1 million dollars, even though I am the business, and there is no way I can fetch 1 million dollars for selling my business.
To counter the 1 million valuation, I would need to hire my own expert to value my business at 0.
Experts are expensive, and like attorneys, you are paying PER HOUR. And this is how your simple divorce can amass millions in attorneys’ and experts’ fees in a very short time.
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