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CFLS > Businesses > Flashcards

Businesses Flashcards

1
Q

The court may choose method (Pereira/Van Camp) by selecting whichever formula will _____.

A

achieve substantial justice between the parties
Beam v. Bank of America (1971) 6 Cal.3d 12

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2
Q

When a business is _______, then the court should compute a fair compensation for the community efforts, skill, and talent rendered during marriage.

A

capital intensive and capitalized with SP (i.e. when the chief factor of growth of the business is due to capital/equipment and/or labor of others)

Van Camp v. Van Camp (1921) 53 Cal.App. 17

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3
Q

(Reasonable Compensation - Compensation Paid) x Years Married = CP interest.

A

Van Camp Formula

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4
Q

When party’s efforts are not the primary growth factor (i.e. still works there but has no management role and did not contribute to current majority sales program), ______.

A

Van Camp is appropriate.

Marriage of Brooks (2019) 244 Cal.Rptr.3d 910

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5
Q

Determines allocation by adding ______. Any value above and beyond is CP. It is generally used when the chief factor of the business is _____.

A

SP at DOM to SP interest during marriage

due to personal efforts

Pereira v. Pereira (1909) 156 Cal. 1

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6
Q

FMV at DOM + (FMV at DOM * Rate of Return * Years Married) = SP interest.

A

Pereira Formula

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7
Q

The court may use a blended approach using different methods for different time periods in the life of the entity based upon the capital/personal efforts.

A

Marriage of Brandes (2015) 239 Cal.App.4th 1461

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8
Q

An apportionment of profits may be required when one spouse _______ BUT not when the spouse expended only minimal effort.

A

invests separate funds in real estate or securities

Estate of Neilson (1962) 57 Cal.2d 733

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9
Q

The court cannot order Pereira/Van Camp if no evidence of the time devoted to managing ______ is presented.

A

real estate/securities

Marriage of Ciprari (2019) 32 Cal.App.5th 83

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10
Q

When a spouse applies skills, efforts, and industry to increase CP business after separation, _____ should be applied.

A

reverse Pereira/Van Camp

Marriage of Imperato (1975) 45 Cal.App.3d 432

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11
Q

FMV at separation = (FMV at separation x Rate of Return x Years of Separation) = CP interest.

A

Reverse Pereira

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12
Q

Reasonable Compensation during Separation = SP interest.

A

Reverse Van Camp

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13
Q

The court has the authority to reimburse the community where one spouse has enjoyed _______ after DOS.

A

exclusive use of the business

Marriage of Watts (1985) 171 Cal.App.3d 366

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14
Q

The court shall value assets and liabilities ______ unless good cause exists for an alternate date of valuation.

A

as near as practicable to the time of trial

Family Code 2552

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15
Q

Generally small businesses that rely on owner’s skills, services, and reputation are valued _____ per Family Code 771.

A

at the date of separation

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16
Q

Small law practice should be valued at DOS as ______ but related directly to the rendering of professional services unless a large firm where the party has _____ OR ____ in partnership agreement provides accurate value.

A

most law firms are not capital assets

insignificant role in value

formula

Marriage of Green (1989) 213 Cal.App.3d 14

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17
Q

When business is primarily dependent on the owner’s skills (goodwill), the business must be valued at _____.

A

DOS

Marriage of Stevenson (1993) 20 Cal.app.4th 250

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18
Q

The court is not required to find that the entire post-separation increase was due _______ in order to apply an alternate value date.

A

exclusively to the personal efforts of the operating spouse

Marriage of Duncan (2001) 90 Cal.App.4th 617

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19
Q

When a party’s expert makes ______, it undermines their credibility. In this case, the court used H’s value from 6 months prior and added an increase in income to determine value at trial as opposed to forcing H to pay for a 3rd valuation because W’s expert was not credible and had _____ to valuation or valuation date.

A

unreasonable arguments (such as pushing for a sale)

delayed/refused to agree

Marriage of Honer (2015) 236 Cal.App.4th 687

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20
Q

Court permitted alternate date of valuation when business owner ______.

A

failed to cooperate in producing records

Marriage of Stallcup (1979) 97 Cal.App.3d 294

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21
Q

Business owner has burden of proof to establish _____ because business owner has access to all the facts to support the claims.

A

correctness of returns

Marriage of Hein (2020) 52 Cal.App.5th 519

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22
Q

Neglecting fiduciary duty (by running business into ground) _____.

A

could be grounds for alternate valuation date.

Marriage of Koppelman (1984) 159 CAl.App.3d 627

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23
Q

______ is NOT a basis for an alternate valuation date.

A

Failure to disclose insider information when barred from doing so under securities law

Marriage of Reuling (1994) 23 Cal.App.4th 1428

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24
Q

The court found that a significant increase in value and profit generation post trial could be ______.

A

tied all the way back to community efforts in specific circumstances (i.e. movies/tv shows/etc.)

Marriage of Zaentz (1990) 218 Cal.App.3d. 154

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25
Q

The court may impose a _____ in awarding one party the business.

A

covenant not to compete

Marriage of Greaux and Mermin (2014) 223 Cal.App.4th 1242

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26
Q

Even though H had business prior to marriage, because he ______, the business was now CP.

A

filed for bankruptcy during marriage and thereafter resumed the same business

Marriage of Winn (1979) 98 Cal.App.3d. 363

27
Q

SP business is only transmuted to CP due to bankruptcy when _____.

A

the bankruptcy determines that the business is valueless

Marriage of Denney (1981) 115 Cal.App.3d 543

28
Q

The court may reserve JDX over ____ but only for a limited time period.

A

WIP

Marriage of Kilbourne (1991) 232 Cal.App.3d 1518

29
Q

The mere incorporation is not ______ and retains its characterization.

A

an acquisition

Marriage of Koester (1999) 73 Cal.App.4th 1032:

30
Q

The following factors should be considered in valuing a closely held corporation: ____

A

(1) nature of the business and history of the enterprise from inception;
(2) economic outlook in general and condition and outlook in industry;
(3) book value and financial condition;
(4) earning capacity;
(5) dividend-paying capacity;
(6) whether goodwill or other intangible asset;
(7) sales of stock and size of the block of stock to be valued;
(8) market price of stocks of corporations engaged in same or similar line of business having their stocks actively traded in a free and open market, either on an exchange or over the counter.

IRS Revenue Ruling 59-60

31
Q

The court must consider all eight (8) factors of 59-60 in ___. The court cannot exclusively rely on one thing (in this case the price-earnings ratios of publicly traded stock).

A

valuing a closely held corporation

Marriage of Hewitson (1983) 142 Cal.App.3d 874

32
Q

That which the owner/operator would essentially have to pay another person to do the same job. Generally, this is set by surveys in the industry.

A

Reasonable Compensation

33
Q

Reasonable compensation where owner/operator was compared to his peers doing ____ was appropriate.

A

the exact same in the same industry and in the same geographic location

Marriage of Ackerman (2006) 146 Cal.App.4th 191

34
Q

Reasonable compensation must be determined from ______ including the same geographic location and industry.

A

similarly situated individuals

Marriage of Rosen (2002) 105 Cal.App.4th 808

35
Q

Error to use only ______ as sample of compensation.

A

last year or so

Marriage of Riddle (2005) 125 Cal.App.4th 1075

36
Q

Risk rate applied to the calculation (generally 1-5) based upon the stability, growth, etc. It is very discretionary and highly debated. (You take the inverse to get the % i.e. a 5 would be ⅕ or 20%.)

A

Capitalization Rate

37
Q

The advantage or benefit which is acquired by an establishment beyond the mere value of the capital stock, funds or property employed therein i.e. habitual patronage, reputation, skill or affluence, etc.

A

Goodwill

38
Q

Found that goodwill can exist in a _____ i.e. reputation.

A

personal service business

Mueller v. Mueller (1956) 144 Cal.App.2d 245
Golden v. Golden (1969) 270 Cal.App.2d 401

39
Q

Factors to consider for goodwill of professional practice are: ____

A

(1) age;
(2) health;
(3) past earning power;
(4) professional reputation;
(5) skill;
(6) knowledge;
(7) professional success;
(8) nature and duration of business.

Marriage of Lopez (1974) 38 Cal.App.3d 93

40
Q

Although the court has wide discretion to determine the value of goodwill at trial, they cannot ____. The trial court must provide their reasoning and legal basis for coming to the value assigned.

A

do so on a whim

Marriage of Hargrave (1985) 163 Cal.App.3d 346

41
Q

The court found that an attorney who had only been licensed for 7 years, at the firm 5 years, and a shareholder for only 2 years. Due to his _____, the court reasonably concluded that he had not contributed in any substantial way to whatever ____ the firm might possess.

A

youth and inexperience

goodwill

Marriage of Aufmuth (1979) 89 Cal.App.3d 446

42
Q

The stock purchase agreement is _______ , and the trial court erred when it did not consider H’s _______.

A

not controlling

professional reputation and years of experience

Marriage of Fenton (1982) 134 Cal.App.3d 451

43
Q

_______ is akin to goodwill as it is developed from relationships with clients, etc. But wife’s transitional bonus came with several conditions and the court should appropriately divide between CP/SP.

A

Book of Business

Marriage of Finby (2013) 222 Cal.App.4th 977

44
Q

The court erred by not considering H’s _______ of the business.

A
  1. age
  2. expressed desire to retire, and
  3. projection higher than actual output

Marriage of Rives (1982) 130 Cal.App.3d 138

45
Q

When joining an existing partnership, if the partner does not buy into WIP/AR, the partner has ______ and the court can only determine that partner’s own goodwill.

A

no ownership of them

Marriage of Iredale & Cates (2004) 121 Cal.App.4th 321

46
Q

Court found that “career” or “practice” as a ____ is not a business to be divided but income only.

A

motion picture director

Marriage of McTiernan & Dubrow (2005) 133 Cal.App.4th 1090

47
Q

Minority and Marketability most common ones however the _____ are discretionary.

A

Discounts

48
Q

Where the owner has a small interest and really no say in decisions of business, the value can be discounted.

A

Minority Discount

49
Q

The court will typically adjust where the spouse owns a ____.

A

minority interest

Marriage of Behrens (1982) 137 Cal.App.3d 562

50
Q

Where there is no ____ (or limited by buy-sell agreement), the value can be discounted.

A

market

Marketability Discount

51
Q

Where there are restrictive stock ownership agreements, valuation ______.

A

may be discounted

Marriage of Rosan (1972) 24 Cal.App.3d 885

52
Q

The court should not charge the _____ in valuing the interest in a business because it is merely a potential debt at some point in the future.

A

potential tax liability to the community

Marriage of Fonstein (1976) 17 Cal.3d 738

53
Q

Reducing value based upon a _____ (if sells business in future) is too speculative.

A

future covenant not to compete

Marriage of Czapar (1991) 232 Cal.App.3d 1308

54
Q

When the community benefits (in this case $7.5M) in a sale that occurred with ______, the community must bear the whole detriment of the ________.

A

covenant not to compete condition

owner spouse’s inability to work during the covenant period

Marriage of Quay (1993) 18 Cal.App.4th 961

55
Q

Values the present worth of future benefits of ownership

A

Income Approach

56
Q

(Average earnings X Cap. Rate (1-5)) + Non-operating assets

A

Capitalization of Income Formula

57
Q

Court found that valuing medical practice at 25% of gross billings and adjusting for _____ was proper.

A

profitability

Marriage of Barnert (1978) 85 Cal.app.3d 413

58
Q

It was error for the court to accept ______, as opposed to an average, in determining value, especially considering the ______.

A

one year of net income

volatility of income over the years

Marriage of Rosen (2002) 105 Cal.App.4th 808

59
Q

(Adjusted book value) + [(Average net earnings - Reasonable Compensation) - (Rate of Return on Book Value)] X Cap. Rate (1-5)

A

Capitalization of Excess Earnings Formula

60
Q

Any WIP or AR at the DOS needs to be ______ as an adjustment. The court must give weight to the discount for _______.

A

added back to the balance sheet

uncollectibility

Marriage of Nichols (1994) 27 CAl.app.4th 661

61
Q

AR from during marriage is ___ so must be equally taxed if collected.

A

CP

Johnson v. U.S. (9 Cir. 1943) 135 F.2d 125

62
Q

Although AR brought into marriage (and collected and spent during marriage) was roughly the same as the AR at separation, _____.

A

it cannot be “offset.” The AR at separation is CP while the AR at marriage is long gone.

Marriage of House (1975) 50 Cal.App.3d 578

63
Q

Determining what the business could sell for on the market by comparing to like companies.

A

Market Approach

64
Q

The court may value a business based upon the _____.

A

right to withdraw from a partnership (detailed in the partnership agreement).

Marriage of Fonstein (1976) 17 Cal.3d 738

CFLS (16 decks)

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