For the purpose of divorce and other property division cases, you may need to work with a Chino Hills business valuation lawyer. Your attorney will work closely with financial advisers, forensic accountants, and other business experts to obtain an accurate estimate of your company assets.
All divorcing couples who own a business together will need to get a proper business valuation, or else the courts cannot determine the total worth of each spouse. Without a combined net worth, assets cannot be equally distributed, which means court proceedings cannot continue.
There are three specific processes that can be used when valuing a business — a discounted cash flow analysis, the multiples method and the comparable markets method.
Discounted cash flow analysis is a mathematical formula used to determine your business’s present-day value. To achieve this, financial experts first predict the yearly earnings of your business and apply a discounted rate to the cost of capital. Doing so negates any potential variables such as inflation to reach a true value of your business’s worth in today’s currency.
Other factors, such as the potential sales growth and higher future profit margins, must also be considered when using a discounted cash flow analysis.
This method uses multiples (dividing one metric into another metric) to mathematically determine how well your business fares against the competition. These multiples may include the enterprise multiple (a company’s earnings before interest, taxes, depreciation, and other factors), or the price-to-earnings valuation multiple (your business’s share price divided by its annual earnings).
Using these multiples helps decide how well your company is competing in today’s market so as to better reach a fair appraisal.
This method compares your business value with other the estimated values of other similar businesses. Market conditions and other changes within the industry, however, can significantly affect the value of a similar business.
In addition, sometimes it is hard to find similar businesses without firsthand expert knowledge on a particular industry. As such, this method is not always the most reliable.
Since California divorce proceedings fall under community property laws, an inaccurate business valuation can have dire repercussions. Under community property law, anything you have earned while married is also legally considered your spouse’s property as well, and this includes your business.
Therefore, if your business valuation contains mistakes, you may end up forfeiting far more of your business than you were legally obligated to; in any case, you could end up with an inequitable property distribution.
When a couple divorces, an accurate business value must be calculated for the courts to equally distribute company assets between both parties. The method of valuation (either a discounted cash flow analysis, comparable markets, or the multiples method) can greatly influence the property division.
During divorce, all community property must be equitably divided. When a business enters the picture, it can be very difficult to identify the assets and debts involved – and that’s why many people choose to work with an attorney.
Under California law, property that a couple acquires during a marriage is considered community property. That includes businesses. However, in some cases – such as when one spouse owned a business prior to the marriage and brought the other spouse in after the marriage – things can become complicated quickly.
If you own a business and are divorcing, a business valuation lawyer will ensure your assets are properly declared and fairly represented by using the correct method of appraisal. Don’t let your business fall prey to faulty calculations or argumentative hyperbole.
Call us at 909-466-7661 or contact us online for complimentary initial consultation. We will be able to provide you with case-specific legal advice so you can make the right decisions for your future.