If one spouse owns and operates a business, how can the other spouse ensure they obtain their portion of that business during divorce?
To begin, a lot of things are valued because a dollar amount is associated with it. So for example, if there is a bank account that’s subject to division, you know how much is in the bank account and you equally divide it. Businesses are different from this, and usually what is required to value a business—is a forensic accountant. The reason this is because businesses do not have price tags, meaning they don’t walk around with a value assigned to them usually.
So let’s say you’re valuing a sign-making business, a restaurant, or a medical practice—typically the court will either appoint a joint forensic accountant or you can hire your own forensic accountant to do a business valuation. If you or your spouse owns and operates a business and that business was started during marriage, or even before marriage but was operated during marriage, there’s going to be a community value component to that.
In order to value that properly, the forensic accountant will look at the books, and look at the documents and the bank statements and the hard assets, and come up with a value and make that representation to you as a litigant and also to the court. If you can’t use that valuation for purposes of settlement, then you need to take it to court and have it divided.
Usually, spouses who operate businesses will think their business is not worth anything because they want to say, “Well my business is just me” or, “It’s me and my phone” or, “It’s me and two employees and there’s no value to it”, and there really is. There’s really community value to a business, and usually, the court will find that there’s some “goodwill”, a term that the courts, forensic accountants, and lawyers use to mean that, and this isn’t the technical definition obviously, are people going to come back to your business? That’s kind of intangible value that a forensic accountant will put on a business using the various tax returns, bank statements, cash flow, and things that are relative to the business so that you can develop a value for purposes of division.
Ann A. Thomson is a family lawyer practicing in Seal Beach, California. She serves clients throughout the Orange County and Southern California area.