Cerritos Business Owners Divorce Lawyer

Cerritos Business Owners Divorce Attorney

Cerritos is a beautifully master-planned community, boasting wonderful outdoor activities. There is always something lively to do at the Farmers Market, Performing Arts Center, or Sculpture Garden. Building a business in such an innovative community is a great decision. If that decision is threatened by a looming divorce, contact a local Cerritos business owners divorce lawyer. They will guide you through the process of preserving your business after the divorce.

Minyard Morris: Experienced Counsel for Business Owners Divorce Cases

Going through a divorce is complicated under any circumstances. Trying to preserve a business you’ve worked hard to build can be overwhelming. Our dedicated team of divorce attorneys at Minyard Morris is ready to put our 350 years of combined experience to use in advocating for your goals. We offer a unique approach to family law. We match our clients and attorneys based on experience, skills, and personality while making sure your goals, expectations, and needs are our focus.

Through collaborative weekly meetings, we discuss unique case challenges among all 19 of our family law attorneys, allowing us to offer tailored support through collective experience. We are frequent lecturers and authors on numerous family law topics. Our dedication to professionalism, ethics, and integrity has resulted in our being rated Platinum for Client Service by Martindale Hubbell.

Cerritos Business Owners

In 2024, Cerritos had a total population of 46,324, which encompassed the following:

23,090 total labor force
34,800 total employees
31% blue collar
68% white collar

Cerritos had a total of 3,393 businesses, with a breakdown of:

52% had 1-4 employees.
83% had 5-9 employees.
05% had 10-19 employees.
86% had 20-49 employees.
75% had 50 or more employees.

California Definitions of Property Types

As a business owner, how your business is handled during a divorce could depend on how the property is classified by the state’s business owners divorce laws. During the divorce process, all your property and debts should be divided based on how they are characterized. California courts recognize several types of property:

Community property includes all property and debts acquired during the marriage. Even property and debts obtained without the other person’s knowledge or consent may be considered community property and subject to equal division.
Separate property encompasses all property and debts each party proved before the marriage or after the official separation. Separation begins once one spouse expresses the clear desire to separate and then takes steps to move toward a separation. Gifts and inheritances received during the marriage are generally also considered separate property unless they were specifically shared.
Quasi-community property involves property and debts obtained during the marriage, but while one or both spouses were living outside California. The court system treats quasi-community property the same as it would community property during the division of assets.
Commingled property includes property and debts accumulated during the marriage that could be considered partially separate and partially community property. Commingling most commonly happens with high-value assets, such as real estate, or with banking or retirement accounts maintained during the marriage but opened before it.

If the division of property happens in court, the judge must award assets and debts in a fifty-fifty split. If an agreement is reached outside the court system, the judge will approve of the arrangement, even if it is not an even split.

Determine Your Business’s Value

An accurate valuation is important, as the value of the business should partially determine potential asset distribution. You must provide an a financial disclosure to your spouse after the divorce process has begun. Several methods are routinely used to determine a business’s value:

The income approach evaluates your business spousal claims against the business may also be influenced by the amount of your salary provided by the business.
The market approach estimates the value of the business by examining similar businesses in the area that have recently been bought or sold. This method relies on the availability of similar businesses in comparable areas to make a determination of value.
The asset approach examines the total value of all tangible and intangible assets held by the business, along with liabilities.

A professional valuation is likely to use multiple methods to achieve an accurate estimate of the business’s value. A knowledgeable Cerritos business owners divorce attorney can find a skilled forensic accountant or similar professional to conduct the detailed valuation. If the asset distribution is contested, your appraiser may also testify to the value of your business in court.

Dividing Business Assets

Once an accurate valuation has been completed, you can discuss your business goals with your business owners divorce lawyer to determine your next course of action. How you choose to proceed could be determined by:

Your plans for your business after the divorce is finalized
The potential relationship with your spouse after the divorce
Whether the division of assets is likely to be contested

Possible methods of division include:

Buyout. If you want to retain sole ownership of your business after the divorce, buying out your spouse’s share of the business would be a good method and likely approved in court.
Asset offset. If you want to retain sole ownership of your business but don’t have the funds to buy out your spouse’s ownership in the business, offering assets of equal value as a trade is a viable method.
Shared ownership. If you are not concerned with retaining sole ownership and have a non-contentious relationship with your spouse, sharing ownership is an appropriate method.
Selling. If you do not want to retain ownership of the business, you may be allowed to sell the business, and the proceeds can be divided. The long-term financial impact of each option varies significantly, largely due to the different tax consequences of a buyout versus a sale versus an asset swap.

Hire a Business Owners Divorce Lawyer

If you own your own business, you need to hire a business owners divorce lawyer for tailored advice on your unique goals. Through collaboration and one-on-one attention, we represent our clients’ goals through negotiation and litigation. Contact Minyard Morris to schedule a confidential consultation.

Cerritos Business Owners Divorce Lawyer FAQ

What Measure of Value Does a Family Law Court Use in Valuing a Business?

The measure of value can also be a significant issue in a divorce. The divorce court may use going concern value or investment value. The basis for a divorce court using investment value is based on the idea that the business is not being sold, and the value is that of an investment held by the owner himself (IRMO Hewitson). In other words, what is the value of the business to the operator-spouse.

Measure of Value

Methods of Valuation

What Role Does a Valuation Expert Play in a Divorce?

The expertise and competence of an expert will often have a significant impact on final settlement or trial results. The importance of the role played by an expert in a divorce cannot be over-emphasized. In some divorces, the value of an expert can exceed that of the divorce lawyer. Experts should be retained at the commencement of a divorce, and not after a potential settlement has fallen apart. The expert’s input should be sought before any offers are made or responded to. Early retention of a divorce valuation expert can be critical in the crafting and development of settlement offers, case strategy, and the game plan.

As with Orange County divorce lawyers, all valuation experts are not created equal. It is difficult to quantify the value of the right experts in a divorce. The reputation of an expert is critical to the weight given to an expert by the judge. An unqualified expert may not qualify as an expert in a divorce trial, which would prevent them from testifying. Such a result could be devastating to the outcome of the divorce, as the lawyer would not be able to present evidence of the valuation of the business interest to the divorce court.

What is the Pereira Approach?

One of the theories, Pereira (IRMO Pereira), assigns to the separate property business a reasonable rate of return on the value of the business as it existed on the date of the marriage, and credits the community with the remaining portion of the increase in value. For example, under Pereira, if a business was valued at $1,000,000 on the date of the marriage, and was valued at $2,000,000 ten years later, the community would need to be reimbursed $1,000,000 minus the interest on $1,000,000 for the ten years. Under this approach, there may exist a conflict over what interest rate is applied to the value of the separate property business between the date of marriage and the date of separation, and whether the interest is simple or compound.

Equitable Allocation Approach

What is the Van Camp Approach?

Another approach, Van Camp (IRMO Van Camp), gives the community a right to reimbursement equal to any under-compensation of the owner-spouse during the marriage, and assigns the remainder of any increase in value to the separate property of the owner-spouse.

Any sums paid, during the marriage, by the separate property business to or for the benefit of the community may be deducted from the reimbursement owed by the separate property business to the community for under-compensation under the Van Camp approach. For example, if the separate property business had contributed $1,000,000 to the community during the marriage, over and above the sums paid to the operator-spouse as compensation, and the amount of under-compensation was $1,100,000, the separate property business would be required to reimburse the community $100,000.

The amount owed to the community under either theory is a right to reimbursement and not an interest in the business itself (Patrick v. Alacer Corp. (Patrick I) and Patrick v. Alacer Corp. (Patrick II)).

Application of either of these theories requires a determination of the value of the business on the date of marriage, and on the date of separation.

What Formula or Methodology is Used by a Family Law Court to Value a Business?

The value may be determined by a number of different formulas, so long as they do not involve speculation, and don’t violate any family law principles. Capitalization of earnings, and capitalization of excess earnings, are the two approaches most often used in Orange County family law matters. A divorce court may also use the market approach for valuation, but the use of this approach presents a number of very significant challenges, including using truly comparable companies for comparison. Rules of thumb approaches are generally not accepted by the Orange County divorce courts, because it is difficult to prove the underlying basis for the rule of thumb formulas (IRMO Honer and IRMO Hewitson). Valuations in Orange County family law cases are quite different than business valuations for other purposes.

A divorce court may also consider prior sales or purchases of interests in the business being valued. This approach can have its own problems, including, that prior sale may utilize the discounted future cash flow method.

In family law, a business cannot be valued using the operating-spouses’ expected future earnings (IRMO Fortier). The widely recognized valuation method referred to as the ‘discounted future cash flow’ method (DCF) is not used in California divorces. The divorce court cannot value a business based on speculation relative to the business’s future success or failure.

Generally, a valuation in a divorce requires an analysis of the business’s financial performance during the past five years. An expert may omit from the average, years or events if they are non-recurring, and if the omission will result in a more accurate view of the normalized financial performance of the business. The five year average may be weighted, depending on the facts and the trends.

Valuation Method: Capitalization of Excess Earnings (Asset Based Approach)

Valuation Method: Capitalization of Earnings (Income Based Approach)

What is a “Multiplier” or “Cap Rate?”

If a capitalization approach is utilized, the excess earnings are multiplied by a ‘multiplier’ or divided by the capitalization rate.

The multiplier/capitalization rate relates directly to the risk of the investment. The riskier the business/industry the lower the multiplier. Consider the case of two businesses, one risky and one secure, each with $50,000 of excess earnings. An investor may only be willing to pay one times earning for the goodwill of the riskier business ($50,000) because the business is less likely to continually return the excess earnings to the investor. Alternatively, an investor may be willing to pay three times earnings for the goodwill of the more secure business ($150,000), because the business is more likely to return those excess earnings to the buyer for an extended period.

Other Factors

As in valuations that are performed in other contexts, collectability of accounts receivable, barriers to entry, management team depth, pending legislation, toxic waste, new competitors, minority discounts, bank covenants and many other issues may be relevant.

Is the Community Entitled to Reimbursement of a Portion of the Increase in the Value of a Separate Property Business?

There is a presumption that an asset acquired during the marriage is community property. This idea generally applies to the acquisition of a business. However, if a business is acquired prior to the date of the marriage it is the separate property of the owner-spouse.

If the business increases in value during the marriage, the community may be entitled to reimbursement of a portion of that increase. It is clear that the rents, issues, and profits of a separate property asset are the separate property of the owner-spouse. The natural improvement of separate property during the marriage retains its separate property status (IRMO Ney). A change in the form of a business (sole proprietorship to a corporation) does not cause a business to lose its separate property status (IRMO Koester). But, if the increase in value is due, in part, to the effort of a spouse, the community may need reimbursement from the business.

Any reimbursement to the community is based upon the equitable principle that a separate property business is required to repay the community for any uncompensated community effort expended on the separate property business during the marriage. Reimbursement is determined by using one of several different theories or approaches.

Is a Family Law Court Bound by the Terms of a Shareholder Agreement Relative to the Value of a Business in a Divorce?

In determining the value of a business in a divorce, the court may consider the value of a business that was agreed to in a partnership agreement, but are not bound to value the business interest using that value. The value set forth in such an agreement is not controlling on the divorce court (IRMO Slater).

There are a number of issues that a divorce court looks to in resolving this issue. If a spousal consent was executed, the court will determine whether the agreement was executed by the non-operating spouse with the knowledge that the value being agreed to, would establish a value for the business interest in a future divorce. Whether the non-operating spouse was represented by a lawyer at the time of the execution of the agreement can be critical in the analysis. The terms of the agreement may be binding on the partners/shareholders, but not be binding on the non-operating spouse.

Is It Always Necessary to Hire a Valuation Expert if There is an Issue Relative to the Valuation of a Business in a Divorce?

Representing clients in divorce matters involving a business interest usually requires the retention of a number of experts, including a valuation expert, who assists in the negotiations and in reaching a settlement. In many cases, the divorce court will order the accountants to meet and confer long before the divorce trial to attempt to resolve or narrow their differences.

The potential Family Law Team

Experts

In a Divorce, May the Community Have a Right to Reimbursement for a Portion of the Increase in Value of a Separate Property Business?

If the owner-operator was paid adequate and reasonable compensation during the marriage, there will be no reimbursement to the community under the Van Camp approach. If the owner-operator was under-compensated but the business distributions used for community expenses exceeded the amount of the under-compensation, the community will likewise not be entitled to any reimbursement.Using the Pereira approach, the owner-operator of the separate property business receives an investment rate of return on the value of his or her business as it existed on the date of marriage, and the remaining portion of the increase in value is reimbursed to the community.

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