Understanding Alternate Date Valuation of a Business in a Divorce

When couples divorce in California, and have a business, one of the most complex issues they face is how to value and divide the business. A common question in this process is: When should the business be valued? This timing can affect the final valuation of the business.

The Standard Rule vs. The Exception

In California, generally, assets should be valued close to the trial date. A business is an asset. However, Family Code Section 2552(b) creates an important exception to this rule. This exception lets the court value a business on an alternate date. The most common request is valuation of the business as of the date of separation instead of the trial date, which can make a substantial difference in the final numbers.

What is Family Code Section 2552(b)?

Family Code Section 2552(b) gives courts flexibility in setting valuation dates. It states that the court may value all or any portion of the assets and liabilities at a date after separation and before trial if there is "good cause" to do so. This alternative valuation date must be requested through a formal motion with at least 30 days' notice to the other party.

When Does an Alternate Valuation Date Make Sense?

An alternate valuation date makes sense when:

  1. The business value has changed significantly after the couple separated
  2. One spouse's post-separation efforts have substantially increased the business value
  3. The business is primarily based on personal service rather than capital assets, although some nonpersonal services businesses may also be a good candidate for these motions.

For example, professional practices like law firms, medical practices, or consulting businesses often qualify for separation-date valuation. This is because their value comes primarily from the professional's ongoing work rather than physical assets like equipment, inventory, or market conditions.

The "Good Cause" Requirement

To get an alternate valuation date, you must show "good cause." Courts may find good cause when:

  • The business value comes mainly from one spouse's post-separation work
  • Using the trial date would unfairly include separate property earnings in the community property division

How to Request an Alternate Valuation Date

California Rules of Court, Section 5.390 provides the procedure for asking for an alternate valuation date. According to this rule, you can request a "bifurcation" (separation) of this issue from the rest of your divorce case. This lets the court decide the valuation date separately from the other issues. The logic behind this is that figuring out whether the business should be valued as of the date of separation will allow issues to be resolved or narrowed if they go to a divorce trial.

To ask for an alternate valuation to date in California:

  1. File a Request for Order (Form FL-300)
  2. Complete an Application for Separate Trial (Form FL-315)
  3. Include a declaration that states:
    • The proposed alternate valuation date
    • Which assets the alternate date applies to (in this article, we are only addressing a business, but alternate date valuations can apply to other assets and liabilities)
    • Specific reasons supporting the alternate date

Citing to proper legal authority is also important. California appellate cases have come down over the years, stating when and how alternate date valuations may or may not be proper.

The Balancing Act

Courts must balance two competing interests:

  1. The principle that post-separation earnings belong to the individual spouse
  2. The goal of fairly dividing community property

This balance requires careful consideration of each unique situation. If a business has grown significantly after separation due to one spouse's separate efforts, using the trial date for valuation would essentially divide that spouse's separate property—which goes against California law.

Local Rules Matter

Individual counties may have additional local rules about when these motions must be filed. Some counties require filing before settlement conferences or other procedural milestones. Always check your county's local rules and even specific department rules within the courthouse.

Get Proper Legal Advice on Alternate Date Valuations

Determining the proper date to value a business in a divorce can significantly affect the final property division. Family Code Section 2552(b) provides important flexibility when the standard trial-date valuation would be unfair. Understanding this alternate valuation option could make a substantial difference in your settlement or trial result if you have a business involved in your divorce. No article can answer whether an alternate date valuation of the business is appropriate in your case. Getting legal advice is essential.