Using a business valuation to help navigate divorce

Business owners who chose to divorce face a number of very difficult decisions, especially in California. If you or someone you love owns a business and faces a divorce in the near future, it is very important to understand the threat that divorce poses to a business in order to make saving it a priority, if you hope to keep the business intact.

Businesses qualify as marital property in many instances of divorce, which can cause great headaches for California residents. Our state laws are not as flexible as those of most other states, and couples who choose to divorce in California must divide their marital property equally, meaning an equal division of the value of the couple’s marital property. This makes it important for any business owner facing divorce to know exactly what the business is worth in order to avoid getting treated unfairly in the property division portion of the divorce process.

Is your business in jeopardy?

Not all businesses are automatically considered marital property, particularly if the business owner had the foresight to use a prenuptial agreement to set the business aside as personal property before the marriage. If you and your spouse used a prenuptial agreement, then now is the time to get the agreement out and review it very carefully.

With any luck, you may find that your business is safe from division and you can focus on other more pressing issues. However, if you did not protect the business with a prenuptial or post-nuptial agreement, then it is very likely that your business qualifies as marital property and must factor into your property division negotiations.

Do you know what the business is truly worth?

Although the law treats businesses like it treats much simpler assets like real estate or savings accounts, a business is far from a simple asset. Depending on the nature of the business, the complexity of its income streams, and other factors like associated property and employees, determining the value of a business is not a simple matter, particularly the value of the business up for grabs in the divorce.

For this reason, it is usually wise for any business owner facing divorce to obtain a professional business valuation. This process allows owners to see in detail exactly how much value the business represents. Without a detailed understanding of this value, property division is very difficult to navigate.

Your spouse may attempt, for instance, to negotiate much more than his or her fair share if the exact value remains unknown. A skillful negotiator can usually use lack of clarity to his or her advantage and negotiate imbalanced, one-sided agreements. In order to protect the assets that you have and keep from losing more than necessary, it is always wise to know exactly what you’re working with.

Protect your future with careful planning

Whether or not you hope to save the business, you must take your own needs and priorities seriously. Be sure to use all the legal resources that you have available to keep your rights secure and protect the business that you worked so hard to build, giving you room to grow in the future once your divorce is behind you.