family law, Legal

Divorce and Real Estate Part 1: Legal Reasons #59

How is California community property divided?

Many think  you would have to divide each physical object equally.  All that the law requires is that the net value of the assets received by each spouse must be equal. Thus, it is not uncommon for one spouse to be awarded the family residence, with the other spouse receiving the family business and investment real estate, as long as each spouse gets assets that are equivalent in value. Since the total net value of the assets being received by each spouse is equal, such a division is proper.

Ordinarily, it is not difficult to determine whether a particular asset is community or separate property. However, certain types of assets can pose unique problems in this regard, including a business that one spouse owned before marriage and both spouses worked on during the marriage, or property that belonged to one spouse before marriage but was shared during the relationship.

What about a closely held business or professional practice?

Like any other asset, a business or professional practice must be considered in the valuation and division of community property. To the extent that a business or practice has been developed during the marriage, there is a community property interest that must be dealt with in the dissolution. The most difficult and time-consuming aspect of determining the value of a business or professional practice is in evaluation of “goodwill.” This is the intangible value that most businesses have, which is based on the expectation of future business, based on established name or reputation. If the business or practice is operated by one of the spouses, it has a goodwill value even if it could not be sold on the open market.

Often, a business person or professional will say, “How can there be any goodwill . . . if I stop working, the office does not make any money?” The law’s answer is that the goodwill of a business or professional practice is valued as a “going concern.” That is, the law assumes that the business will continue operating and will not lose any customers that would otherwise have been lost if it were sold to another owner.Certified public accountant and business appraisers are hired to determine the value of a business or professional practice. The accountant or appraiser who is hired reviews the books and records of the business or practice and prepares a written report.

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