In California, courts consider assets acquired during marriage as equally owned by both spouses. This includes any businesses started or grown during the marriage. During a divorce, the court will consider them equally owned by both parties, even if only one of them runs it.
Business valuation plays a key role in the court’s decision on dividing the marital assets. However, assessing professional practices like doctor’s offices or law firms can be challenging.
How are professional practices different from other business assets?
Professional practices often depend on intangible assets tied to the person running the business. This means they can be difficult to sell or transfer, which can affect the practice’s overall market value. These assets may include:
- Personal goodwill, or the value that comes from a professional’s individual skills, reputation and relationships
- Professional licenses and certifications
- Partnership interests and agreements
- Client relationships and loyalty
- Specialized knowledge and expertise
Valuators may use several methods to assess professional practices. Aside from evaluating the practice’s assets, they may also look at its earnings or compare its market value to similar businesses. In many cases, valuators will apply multiple methods to arrive at a final value. The method they choose depends on the specific practice, available data and the specific circumstances of the case.
What happens after valuation?
After the valuation process, the court may consider several options:
- Buy-out: The practicing spouse pays the other for their share.
- Asset offset: The court balances the practice against other marital assets.
- Co-ownership: Both spouses retain ownership, sharing profits.
- Deferred sale: The court orders the sale or division of the practice at a future date.
- Earn-out: The non-practicing spouse receives payments based on the practice’s future earnings.
The court’s decision depends on factors like the nature of the practice, the spouses’ financial situation and their ability to cooperate.
Protect your life’s work
Your professional practice represents years of dedication and hard work. If you’re unsure about how divorce proceedings can affect it, an attorney can provide clarity.