Business Valuation in California Divorce

Why Business Valuation Matters in Divorce

When a business or professional practice is part of a marital estate, it often represents the most significant and most contested asset in the divorce. The value assigned to the business determines how much one spouse owes the other — and getting it wrong can mean leaving hundreds of thousands of dollars on the table, or being ordered to pay far more than is fair.

Furubotten Law, APC collaborates with top-tier financial professionals, including forensic accountants, business appraisers, and certified business valuators, to ensure that every business interest is thoroughly and accurately evaluated.

Is a Business Community Property?

Whether a business or business interest is subject to division in a California divorce depends on when it was established and how it was funded:

• A business started during the marriage with community funds is generally community property subject to equal division
• A business started before marriage is generally separate property — but any increase in value during the marriage attributable to either spouse's efforts or community funds may be community property
• A business started before marriage with separate funds but grown substantially during the marriage using marital income or effort presents a mixed-characterization analysis requiring expert tracing

Business Valuation Methods

California courts recognize several approaches to business valuation, and the appropriate method depends on the type of business and the purpose of the valuation:

• Income approach — values the business based on its expected future earnings, typically through a capitalization of earnings or discounted cash flow method
• Market approach — compares the business to similar businesses that have recently sold
• Asset-based approach — values the net assets of the business, typically used for holding companies or businesses with significant tangible assets

Professional practices — law firms, medical practices, dental practices, accounting firms — often involve "goodwill" that must be carefully analyzed. California distinguishes between enterprise goodwill (which is a marital asset subject to division) and personal goodwill (which attaches to the individual and is not a marital asset).

Protecting Against Undervaluation

A spouse who owns or controls a business has both the incentive and the opportunity to understate its value — through understating revenue, overstating expenses, deferring income, or manipulating the timing of transactions. Our team works with forensic accountants to identify and address these tactics, ensuring that the true value of the business is presented to the court.

Last reviewed: May 2026 · Author: Denise Furubotten, Esq.