Dividing the Business? Don't be Cheated! - The Men's Legal Center

SAN DIEGO DIVORCE LAWYERS

In the old form of businesses, formal businesses were usually easy to identify. They are brick and mortar and had a name on the door. Examples are garages, retail stores, dentists, lawyers, etc. Normally in family court cases, the court will order a formal appraisal of the business.

The new business reality is that many businesses take unusual forms and may not have a brick-and-mortar physical presence. There are many home-run or digital (laptop) businesses. An example is selling collectible memorabilia on E-bay, developing websites, and b Buying and selling Crypto-assets like Non-Fungible Tokens (NFTs) in cyberspace.

Side businesses are performed by people who have a regular full-time job and may have another after-hours or weekend job. The court will normally not force a person to work more than 40 hours a week or the normal work regime for a given industry. For example, many nurses work may work three (3) twelve-hour shifts during the week. It is not uncommon for a hobby to become a side business and, in some cases, full-time work. 

Should a divorce occur, it is sometimes difficult to put a valuation on the side business started during marriage because it is “only” a side business? The value of a side business is more obvious if it is profitable. But even a “pre-revenue” business has value.

If the business was set up during the marriage, then the time invested, money, and effort are considered community property.

In analyzing a formal business, the out-spouse should look at the following factors: (1) The idea behind the business. What value in goods or services does the side business provide? (2) The assets of the business. i.e., computers, home office furniture; (3) Business inventory such as bags of coffee beans for coffee stands; (4) Business setup time: How much time did the spouse spend setting up the business and did the out-spouse help with the business; (5) Business fees such as DBA fees, incorporation fees, governmental filing fees, (6) Account receivables; (7) Assumable lease agreements, (8) List of customers or clientele; (9) Test of time: Does the business have a track record, service or product delivery?

It is easy for the out-spouse not to see value in a side business, simply because he/she was not directly involved in the side business. But it may have value to the entrepreneur in-spouse who set it up or to a third-party purchaser.

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