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Steven  K.
Steven K., Family Law Attorney
Category: Family Law
Satisfied Customers: 1610
Experience:  I have practiced family law since 1996, focusing on child custody and domestic violence
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company with negative equity. One spouse owns 100%. Divorce

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company with negative equity. One spouse owns 100%. Divorce finalized; property settlement not yet. Non-operating spouse hasn't worked for 30 years, reasonably wants to not be in a minority voting position. Operating spouse (founder/President) on medical leave. Company staff can't work for either, but has operating control for the moment. How does one value such a company? Future earnings are uncertain, but existing shareholder/ex-spouse probably won't sell for $!. Court-ordered appraisal old & worthless; company was $4 million/month in sales, not under $2 million. Heavy debt to bank which has just put company into lockbox.
Submitted: 1 year ago.
Category: Family Law
Expert:  Steven K. replied 1 year ago.

Steven Kincaid :

Thank you for allowing me to assist you.

Steven Kincaid :

The way a business is valuated in California depends on whether the community contribution was primarily material/capital or if it was primarily through the efforts of a spouse. Where the community contribution was based primarily on the financial contribution to the company, the Courts will usually determine the reasonable value of the services of the spouse who worked for the company, allocate that amount as community property, and treat the balance as separate property. More commonly, the community's primary contribution is through the labor of one spouse. In that situation, the California courts usually allocate a fair return on the working spouse's separate property financial investment as separate property income and allocate any excess to the community property as arising from the husband’s efforts.

Steven Kincaid :

The first method is called the "Van Camp" approach. The second is called the "Pereira" approach.

Steven Kincaid :

I know this is confusing, so if you could tell me what contributions were made from the community into the business (both financial investments and labor investments) I might be able to explain this more clearly.

Steven Kincaid :

Here is a simpler, more mathematical way to look at the Pereira and Van Camp methods for valuating a business:


PEREIRA (pro-CP)


*used when community labor was primary reason for appreciation in value of the asset


(1) Take starting value of the separate property business ($100k)


(2) Using 10% as fair rate of return, calculate rate of return over course of marriage. (e.g., 10% per year for 10 years)


(3) Add starting value of business + total fair rate of return = SP investment


(4) Subtract SP investment from the value of the business NOW to determine CP portion


VAN CAMP (pro-SP)


*used when the uniqueness of the asset or circumstances surrounding it was reason for the appreciation


(1) Calculate a fair salary for spouse's CP labor put in to the Business.


(2) Subtract from CP labor CP living expenses to determine CP labor surplus.


(3) Multiply CP surplus by the # XXXXX years of marriage = total CP surplus


(4) Take CURRENT value of Business subtract total CP surplus = SP

Customer:

wow! Pereira & Van Camp info VERY interesting. We are also looking for a market approach to value. the company has lost a lot of cash and its future as a going concern is in doubt. Are there other ways to consider this?

Customer:

THANK YOU!

Customer:

(potential duplication) Van Camp & Pereira methods are interesting. Looking for a market based approach as well, that would be acceptable to court. Company has been losing cash and may not be considered a going concern. Ideas? References to web links? THANK YOU!

Steven Kincaid :

For a market based approach at obtaining a value for the entire business, without considering how it would be divided, you need to hire a professional business appraiser, especially with a business of that size.

Steven Kincaid :

Otherwise, you are depending either on the value of the assets of the company and/or the value of the revenue the company produces, but you won't really have an accurate value of the business. If that i what you produce and the other party disputes it, the Court could accept such a valuation, but you would be much better off hiring a professional to do it right.

Steven K., Family Law Attorney
Category: Family Law
Satisfied Customers: 1610
Experience: I have practiced family law since 1996, focusing on child custody and domestic violence
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