Dividing A Business or Professional Practice In Divorce

Similar to the other assets and property, the business and professional practice is also subject to division between the two parties involved in a divorce. The first consideration to be made in the deciding upon the division of a closely held business or professional practice is to determine whether it falls under the category of separate or community property.

Determination of a business or a professional practice as separate or community property 

The basic guidelines of establishing a business or professional practice as a marital asset are similar to those employed for other property and estate. A business or professional practice which was owned and operated by either spouse before he or she got married will be considered as separate property. However, if the spouse continued to operate the business or professional practice even after their marriage, the property will be considered as community and subject to adequate division in the event of a divorce. In addition to this, even if the business or professional practice is established as separate, the increase in its net worth will be considered as community property. 

Evaluation of the value of a business or professional practice 

There are several factors which are considered while assessing the value of a particular business or practice for the purpose of division in the event of a divorce. A professional appraiser will take into account the individual values of the real estate, inventory, finished goods, amount receivables, bank balances and even the goodwill of the said business to determine its net worth. Similarly, the value of a professional practice such as legal, medical, architectural or accounting will also be calculated on the basis of the individual worth of its physical property, account receivable, fees and goodwill. The most difficult aspect of assessment is the evaluation of the goodwill of a business or practice, since it is largely intangible and cannot be determined via simple figures and statistics. 

Distribution of the business or professional practice 

The final and most complex step in the process is the actual division and distribution of the business or professional practice between the divorce partners. In a majority of divorce cases, the owner of the business or practice is expected to compensate for the ex spouse’s interest in the property by ‘buying out’ of other partner’s interest as part of the division of property.

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Gerald A. Maggio is an experienced Orange County divorce and family law attorney and family law attorney located in Irvine, California, serving the Orange County and Riverside areas. Mr. Maggio assists clients with legal issues including divorce, legal separation, divorce mediation, child custody, prenuptial agreements, stepparent adoptions, and other family law issues. Mr. Maggio has practiced law in California since 1999, and founded The Maggio Law Firm in 2005, focusing exclusively on divorce and family law matters.