In San Diego, many divorce and legal separation cases involve the valuation of a business interest. Unlike many assets in a divorce, a business may not be able to be divided "in kind" for distribution purposes. If there is no division "in kind" then there needs to be a fair market value assigned for division purposes. In the Trial Courts in San Diego, El Cajon, Vista and Chula Vista, the Judges often require an expert opinion as to the valuation of a business. This can be one of the most crucial elements of any divorce or legal separation case.
The definition of "fair market value" by the United States Treasury Regulations is one which is used in California on a regular basis. This is a price at which the business would be transferred from seller to buyer with neither being under any compulsion to buy or sell and both having knowledge which is reasonable of the relevant facts. In divorce and legal separation cases in San Diego, both sides must act in good faith and make full disclosures and also there is the fiduciary duty of spouses to consider not included in the above government definition.
There are, in many cases, issues with undisclosed earnings either in cash or in trade for services or simply cashing checks rather than depositing them into the business account. This is an issue almost always raised by the non owner and non operator spouse of the business. This non disclosure can affect significant decisions by the Judge including attorney fees, child and spousal support and the amount of the division for valuation purposes. As such, it is essential to have all of the information and our firm uses the following strategies to obtain this information: written interrogatories; request for production of documents, request for admissions, subpoenas and depositions as well as experts in different fields and different disciplines.
For self employment cases, sole proprietorships, corporations, partnerships and other business entities, the valuation of the business for community property division can be very complicated and outside the expertise of the divorce attorney. Forensic Certified Public Accountants are used for the complicated job of tracing as well as valuation. Some of the procedures used are to review personal and corporate tax returns, books and official records of the business, cash receipt journals, deposit slips, financial statements, check registers and cancelled checks. This analysis should also include expenses paid for by the business such as a mortgage, vehicle, credit card, property taxes, medical insurance, dental insurance, utility payments, food, personal care, vacations, entertainment, IRA and retirement contributions, repair and other transportation. This is a partial list only for example purposes. One issue is always cash payments which are not deposited in the bank or reported in the financial statements or recorded on any book or ledger.
The document collection in these cases can run to thousands of pages. It is essential to have an organization system in place. As many copies may need to be made, one strategy is to scan all of the documents and organize them on a CD Rom. This is very inexpensive when copies need to be made of thousands of documents and also organizes them by subject and other criteria. A corollary strategy is the use of a "Special Master" for the purpose of valuation as well as tracing and all other community property asset and debt division issues. In San Diego, there are three special masters our firm has used in the past for more than two cases each. Two were Certified Public Accountants before they became attorneys and one is a Professor at two local law schools. This is a very cost effective strategy when there is an issue of a business valuation with tracing and characterization issues. If you would like their names, please feel free to contact our firm directly. It is essential to implement strategies at the beginning of the case to insure your right's are protected and also to obtain your goals. One goal is always keeping the legal fees and costs to a minimum. By using experts in business valuation cases, this can lessen the number of court hearings which can be very economical and outweigh the additional costs of the experts involved.