A Business Which is Dependent on a Spouse’s Efforts is to be Valued on the Date of Separation

In Stevenson, Husband owned a small contracting business.  Wife’s divorce lawyer filed motion for an alternate valuation date, asking that the divorce court to value the business as of date of separation rather than the date of trial.  Wife’s divorce lawyer alleged that the value of the business had decreased because Husband had “deliberately trashed the business” post-separation.  In opposition to Wife’s divorce lawyer’s motion, Husband testified that the decrease in the value was due, in part, to the prevailing economic decline, especially in the construction industry.

The divorce court denied Wife’s divorce lawyer’s motion, finding that Husband did not stop performing in his business to reduce the value of community property and that the proper date of valuation should be as near as practicable to the time of trial.  Wife’s divorce lawyer appealed.

The Second District Court of Appeal held that although good cause is required to value a business at a date other than one which is “as near as practicable to the date of trial,” good cause includes situations where the value of a business is primarily dependent upon the practitioner’s services (i.e., goodwill, accounts receivable, and work in progress), not capital assets.  The Court stated that “[b]ecause earnings and accumulations following separation are the spouse’s separate property, it follows the community interest should be valued as of the date of separation-the cutoff date for the acquisition of community assets.”

Thus, the Second District created a general exception holding that the same logic which supports the valuation of professional practices as of the date of separation should also apply to businesses which similarly rely on the skill and reputation of the operating spouse.

In re Marriage of Stevenson (1993) 20 Cal. App. 4th 250