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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.
The first method is called the "Van Camp" approach. The second is called the "Pereira" approach.
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.
Here is a simpler, more mathematical way to look at the Pereira and Van Camp methods for valuating a business:
*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
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?
(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!
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.
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.
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