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Common Business Valuation Errors


San Diego Divorce Lawyers
Common Business Valuation Errors

When people of a high net worth decide that it’s time to pursue a California divorce, there are several complicated issues that could arise that will need clarification before the marriage can be legally dissolved.  These complications are almost sure to arise if one of the spouses owns all or part of a business, especially when it comes to performing a valuation of that business for the purpose of property division.  Unfortunately, there are many common mistakes that are made during this process, and below are a few examples.  If you face this situation, seek the help of experienced San Diego divorce lawyers as soon as possible.

Discounted Future Earnings

One of the most common methods for placing a value on an existing business is known as the discounted future earnings method.  Generally, this method forecasts the future earnings of a business concern and then deciphers the current worth of that business based on that projection.  However, there are limits in terms of the number of situations in which this method is effective and appropriate, and it is generally not the best method to use when the business at issue involves professional services such as law firms or medical offices and how this asset should be applied to the property division of a California divorce.

The Market Value Method

Another common method for placing a current value on a business is known as the market value method.  This method is basically a comparative analysis, in that it takes the numbers associated with a business that’s roughly the same size and involved in the same industry as the business at issue in the California divorce.  While this method may offer some insight into the value of the business at issue, it is not always viewed favorably by the courts.  That’s because courts have found that the value held by one shareholder when compared to the duty owed to many other shareholders does not provide a practical result.

Valuation Mistakes Are Costly

Ultimately, when a business ownership interest is involved in a California divorce, any mistakes that are made when placing a value on that business can lead to serious harm for one of the parties.  That’s because the value placed on a business is a critical variable when it comes to equitably dividing the assets of a marital estate.  If the valuation is not accurate, one of the parties will not receive fair value.

If you face this complicated situation, you owe it to yourself to come to an accurate valuation for the business ownership involved in a California divorce.  Contact the San Diego divorce lawyers at the Men’s Legal Center today to schedule an initial consultation.