What you need to know about assigning value to your family business in divorce

| Mar 8, 2021 | Property Division |

Many divorcing spouses often stress over the prospect of dividing up the marital home. This is because no one wants to uproot themselves and their children and move somewhere else.

However, the marital home is not the most challenging asset to divide in a divorce. Small businesses are tough to value and may quickly become one of the most thorny issues in your divorce.

What to account for when assigning a value to a business

It’s relatively easy to assign value to tangible assets, including land, office building, furniture, heavy equipment and technology. Assigning a value to abstract assets, including intellectual property rights or a customer database, may be tougher.

How appraisals work

How much an appraiser determines that your business is worth may vary dependent on various factors. The reasoning that you provide them with for why you’re doing the appraisal will matter.

Their appraised value may approximate its market value price if you let your appraiser know that you’re assessing your business for tax purposes. They may assign it a higher valuation if you let them know that you’re planning to make it available for purchase to an investor.

The appraisal date may impact what value an appraiser assigns to your family business, impacting property division negotiations in a divorce.

Another factor that makes assessing value challenging

There’s a “blue sky” factor that an appraiser has to account for when determining a business’s value.

A business may have built up value in terms of brand recognition, community trust and solid partnerships, all of which may have a hard-to-determine value associated with them.

Dividing your family business in a divorce

It’s not uncommon for one spouse to retain the family business in exchange for the other retaining shares in the company, or they may take a larger ownership stake in some of the other marital assets in exchange for you holding onto your company. There are instances in which divorcing spouses retain co-ownership of their Sonoma County family businesses too.

An attorney can help you understand the implications of making certain choices regarding your California business as you attempt to navigate property division discussions in your divorce.