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Divorce Business Valuation: Community Property vs. Separate Property
If you developed your business during the marriage, you will need to figure out how much that business is worth and divide the assets. Both spouses would be entitled to equal shares of the business’s value. However, if you started the business before the marriage and kept all your business assets completely separate from the marital assets, it could be separate property. In some cases, it may be partially separate property and partially community property.
Figuring out how much a business is worth requires a Certified Public Accountant (CPA) or business appraiser who understands valuation of business for divorce. This expert will prepare a report that compiles all the commercial assets together to present a figure to a court. It is important that the expert has experience valuating businesses for divorce. This is important because that valuation will differ from general market evaluations. For example, there may additional discounts for the lack of marketability or transferability that are specific to spouses in divorce.
It is not uncommon for both spouses to each have their own business valuators who may come to different conclusions. In such a case, the parties will have to come to an agreement or have the court determine the value of the business.
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The following could all be considered business interests. They would all need to be assessed, valued and divided according to California community property law:
- Ownership of closely-held or family businesses (including corporations and franchises)
- Business interests in larger companies
- Commercial real estate ownership or rights
- Professional practices
- Limited partnerships
- Rights to copyrighted or patented works
How Can I Protect My Business in a Divorce? Importance of Marital Property Agreements
Both prenuptial and postnuptial agreements can preserve some of your business assets in a divorce. If a business owner and his/her spouse settle on a prenuptial agreement before marriage, it can clearly outline what would happen to the business property due to divorce or death. Prenups also clearly outline what would happen to all other property, including joint accounts, physical property, stock options and retirement savings.
Postnuptial agreements outline what happens to different types of property in the event of a divorce. Couples can prepare postnuptial agreements any time after marriage. However, keep in mind that family law courts often highly scrutinize these documents. Always speak to a family law attorney if you wish to have a postnuptial agreement drafted for a business interest.