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Fritz
Fritz, Attorney
Category: Bankruptcy Law
Satisfied Customers: 302
Experience:  Florida attorney with extensive experience in Chapter 7 and Chapter 13 consumer bankruptcy cases
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bankruptcy chapter 13 and business valuation in devorce, I

Customer Question

bankruptcy chapter 13 and business valuation in devorce, I filled for cha 13 for my preschool also sell insurence apposing counsel says my insurence bus starts over at o value even though the preschool sale satified all debts and the insuence co was making 150K prior and following the devorce
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  Fritz replied 4 years ago.

Fritz :

Hi, I'd like to assist you with your bankruptcy questions this morning.

Fritz :

Did you complete the Chapter 13 case and receive your discharge?

Customer :

yes

Customer :

my accountant said their is a question about goodwill I was married to her 5 yrs my business was started 25 yr ago and was doing business for 20 yrs prior to marriage.

Fritz :

Sorry, my computer froze. I'm back now.

Fritz :

Please give me a moment, I'm looking for a case on point.

Fritz :

The business would probably not have zero value if it's generating income.

Fritz :

Is the business dependent on a particular employee to maintain its current profitability (i.e. the goodwill is essentially human capital, whether it's you or someone else)?

Fritz :

Generally, California family law courts base a company’s value on either the fair market value (FMV) or the fair value standard. The FMV standard uses the hypothetical financial buyer, and the fair value standard uses the specific investment buyer (value to the spouse keeping the business).

Fritz :

Here's a recent California case on this issue: See IN RE THE MARRIAGE OF ANUNTI-BROWN, Cal: Court of Appeal, 1st Appellate Dist., 2nd Div. 2011, here: http://scholar.google.com/scholar_case?case=9028079471564388459&hl=en&scisbd=2&as_sdt=40005&sciodt=2,10

Fritz :

In that case, the husband spouse owned a home remodeling business that survived a pre-marriage bankruptcy. The Court still made a determination of the value of the business, with the following factors relevant to that determination: (a) its fixed assets, including equipment and supplies; (b) its other assets, including accounts receivable; (c) its goodwill as a going concern; and (d) its liabilities.

Fritz :

Opposing counsel is likely misconstruing In re Marriage of Winn, 98 Cal. App. 3d 363 - Cal: Court of Appeal, 2nd Appellate Dist., 4th Div (1979), here: http://scholar.google.com/scholar_case?case=18323963133852386784&q=bankruptcy&hl=en&scisbd=2&as_sdt=40005&sciodt=2,10

Fritz :

There, the court upheld the trial court determination that the value of the business when the bankruptcy occurred (during the marriage) was zero, and that any present value was solely due to the husband's efforts in reestablishing it after the bankruptcy.

Fritz :

It's not clear that In re Winn is still good law, and even if it was, would likely require that the business at issue here was actually valued at $0 in your Chapter 13 Bankruptcy proceeding.

Fritz :

So the family court judge would need to make a fact-based determination of the value of the business. It would not simply be valued at $0 due to the fact that a Chapter 13 Bankruptcy was filed.

Fritz :

Please let me know if you have any additional questions.

Fritz :

Thank you.

Customer :

well I owned the preschool and the insurence business I filled ch 13 to sell the preschool and pay off the debts which the building had plenty of equity, I ran the insurence business one man operation it made $150,000 that year the nest year it made a little more the Pareira evalution is $113, 000, but the opposing counsel says the business had zero value when the bk ended and I married my exwife, even though I had operated it for 20 years prior to marriage, the are wanting HALF of the business value in devorce court, doesnt the business show that it had value prior to the marriage even though I went through a bk on the secound business which was the preschool, I dont want to pay 20 yrs of hard work to her when she was only married 5 yrs the business is in its 25th year does that value I built in to it disapear because I filled bk in order to sell the other businss, need help

Customer :

Also the corperation went through bankruptcy but I ran the business as a sole proprietorship so when i filled ch 13 bk the corperation was in the filling but how does that effect my sole proprietorship and it was what was making the money

Fritz :

The proper valuation of your business is a question of fact to be determined by the judge. I highly recommend you hire an accountant or similar professional to determine a detailed estimate of the value of the business at the time of the marriage 5 years ago.

Fritz :

Your wife should only be entitled to half of the DIFFERENCE in the business value between what it was worth 5 years ago at the time of your marriage and what it's worth now, not half of the entire value of the business.

Customer :

I have a forinsic accountant but the question is does the bk set the value to zero

Fritz :

The $0 valuation simply has no legal support. You did not liquidate the business in a Chapter 7 bankruptcy, and the business is operational and profitable.

Fritz :

I don't know what the proper valuation is, but I'm certain it's much higher than $0.

Fritz :

In the Winn case above, the business WAS ACTUALLY WORTH $0 at the time of the marriage (at least according to the trial court judge).

Fritz :

There's no way your business was worth $0 at the time of the marriage.

Fritz :

In the Chapter 13 Bankruptcy, what value did you put down in your schedules for the value of this business?

Fritz :

A Chapter 13 Bankruptcy would not set the value of the business to zero. I only ask what value you put down on your schedules because this valuation could be used against you if it's low.

Fritz :

But even that number would not be determinative, as that would have simply been your best estimate at the time, not a professional appraisal value.

Fritz :

Please let me know if you have any additional questions. Thank you.

Customer :

thank you