Valuation of Assets, Businesses and Professional Practices.

May 9, 2013

The general rule in family law cases in California is that assets are valued as of the date of trial [or settlement, which is how most of our cases are resolved].

From time to time, there are reasons for a different date to be used: For example, an asset that has been damaged or destroyed, or a business that has substantially changed in value allegedly due to the activities of one spouse.

If you have a case involving a business or other asset that has changed value since separation to your detriment, it is important to do two things: Hire an attorney who specializes in business or property matters, and file a motion to request that the court set an alternate valuation date. If you don't, you might find the value set at the date of division [trial], with the other party walking away with a windfall.

This issue comes up most often in valuation of professional practices, such as attorneys, doctors, dentists, and architects. Typically, the value changes substantially after separation, either because the spouse in charge works harder, longer hours, or stops seeking new business [or even starts hiding more income and padding out expenses].

Since the late 1970's, California has provided that anything a spouse earns after the date of separation is his or her separate property - in the U.S., this has been the minority rule. That means that the efforts of a spouse that contribute to the increase in value of the business belong to the working spouse, and the former spouse should not benefit. The other side of the coin is the working spouse not working as hard, etc. These can substantially alter the division of assets, primarily dependent on the date chosen by the court to use as the date of valuation.

In a recent case, a Husband requested the use of an alternate date, in an unpublished appellate court decision, and was denied on the basis that he waited too long to make the request - the trial judge decided that the delay prejudiced the Wife, as the period for conducting discovery had passed when Husband asserted the request. It was affirmed on appeal. [See elsewhere on this blog for a discussion of what happens when an appellate decision isn't published.]