Business Valuation in a Divorce

There are many difficult decisions facing a family when they are considering divorce. Many spouses own or work in small business. So how is the business valued for the purpose of equitable distribution of the marital property? Even if the ownership of the business is listed under only one spouse, it would be considered ‘marital’ if it was obtained, financed or improved upon during the marriage.

Courts have a broad and extensive authority to decide what is ‘fair’ when dividing property. Placing a valuation on a business is usually a difficult process that requires appraisers, specialists and people experienced in business procedures.

What are the Businesses’ Assets and Liabilities?

When trying to determine the value of a business, you must ascertain what it owns. There is tangible property that includes office equipment, inventory, machinery, and automobiles. There is also intangible property that could be harder to value. This includes patents, trademarks and business and customer relationships.

State laws vary widely when decisions about intangible property are being made. For example, if one spouse owns a patent before he gets married and then after the marriage he sets up a small business that sells products related to that patent, some states require the spouse-owner be awarded the property; while other states may call for the patent and property to be shared equally. Be sure to consult with an experienced divorce attorney in your state to understand your state’s laws.

Like other valuations, you must find out what the business owes. These liabilities could be goods, services or money owed to others. Once the amount owed is determined, you subtract this number from the business assets and you have the value of the business.

How Profitable is the Business?

When determining profit, you take the income the business generates and subtract expenses. Both parties should hire an expert in business finance to examine the business’ books to determine the income and profit.

Valuation Date

It is important to value the business at the proper time. If you value the business on the date of the marriage, it is usually inaccurate because the economy changes and assets could either rise or decrease in value. Any business should be valued as close to the date of distribution as possible.

Hiring a Professional

Each party could hire their own professional to appraise the business. If each spouse hires a different appraiser, each appraiser must follow certain procedures and professionally approved criterion. These standards decrease the variability in the two valuations. Two appraisers may not come to the exact same valuation, but the difference between them should be small.

Regardless of the size of the business, you should contact a divorce attorney who is familiar with family laws regarding complex property issues. You should be ready to ask the following questions:

• Can I and my spouse agree on the value of the business or do we need to hire a professional?
• Which records do I need to collect in order to determine the value of my spouse’s business?
• Can I simply buy my ex-spouse’s share of the business?

Hiring a Divorce Lawyer

An experienced divorce attorney can answer these divorce questions and help you hire a professional to determine the proper valuation of the business and provide advice on the appropriate legal direction.