California is a community property state. That means that, in divorce cases, all of the property acquired by a spouse during the marriage is to be split evenly with the other spouse. The trouble is that some things, like a house or business, can’t be physically divided in half. In these situations, a court will determine the value of the property at issue, award it to one of the spouses, and order that spouse to pay the other spouse half of the property’s value.
In a recent case, California’s Fourth District Court of Appeals explained that there are certain situations in which a piece of property has no value. For instance, a business that isn’t making money may be valued at zero. In these cases, the spouse who is awarded the property won’t be required to pay compensation to the other spouse.
Husband and Wife separated in January 2000 after roughly 10 years of marriage. Later the same year, a court dissolved the marriage and initially ordered Husband to pay Wife more than $2,400 per month in child support and another $575 in spousal support. Years of litigation followed, however, during which the former spouses disputed a number of issues related to both support and the division of various property. That included a dust up over what should happen with the business that Husband ran as a sole proprietorship.
Although Wife argued that the business was profitable, Husband claimed that it was operating at a loss. The trial court eventually sided with Husband. It awarded him the business and valued it at zero, meaning that he didn’t have to compensate Wife for what would otherwise have been a 50 percent interest in the company.
Affirming the decision on appeal, the Fourth District said there were no grounds for finding that the lower court abused its discretion in valuing the company at zero. Indeed, the Court noted that Wife admitted during the litigation that the company was operating at a loss “on paper.” She also conceded that she didn’t submit any other evidence valuing the company. On the other hand, Husband filed a declaration with the trial court in which he explained that the business was operating at a loss when the couple separated and that its revenue declined steeply after he took a full-time job elsewhere. The court also noted that an accountant reviewed company documents and concluded that the sole proprietorship was operating at a loss in 2011 and had reported “significant tax losses” in the previous three years.
Property valuation can be a complex issue and one that carries significant consequences in California divorce cases. That’s just one of the reasons why it is imperative that a person considering divorce consult an experienced legal professional who can guide him or her through the process and help ensure that his or her rights and interests are protected.
With more than 30 years of experience, San Jose divorce lawyer John S. Yohanan is an accomplished divorce lawyer who has helped a number of clients resolve property valuation and other complicated legal issues on optimal terms. Call our office at (408) 297-0700 or contact us online to schedule a consultation.