On behalf of Cobert, Haber & Haber Attorneys at Law posted in Divorce on Friday, July 8, 2016.
When the marital property of a divorcing couple includes a business, arriving at a monetary value of the business for the purposes of equitable division of assets can prove extremely challenging. State laws differ in the proper methodology used to arrive at a fair valuation, and case law is filled with inconsistent conclusions. Never the less, if a professional practice or closely held business must be financially divided, all effort must be applied to place a quantifiable value upon it.
What Is Business Valuation?
Business valuation is the process by which a fair dollar amount can be reached to facilitate the distribution of marital property when the business or practice is going to remain operational. Unfortunately, because ongoing businesses are more than the sum of assets minus obligations, the valuation is hardly as simple as paying off the bills, selling the assets and then dividing any funds left over.
Why Is Business Valuation Important?
Business valuation is important because no small amount of effort and sacrifice went into the business during the marriage. Often, one spouse applied the efforts and time to start the business while the other spouse facilitated the work in the background. Since marriages are joint efforts, even though the nature of each spouse’s labor is different, the years of teamwork required to grow a business can’t be dismissed merely because one spouse did not physically work in the business.
What Are The Issues That Contribute To The Valuation?
Many factors combine to create a fair value of the business or practice. Before a valuation can occur, first agreement on the standards to employ in the valuation must be determined. The amount of confusion surrounding state laws and case law is staggering. Many states attempt to define standards, but in real practice, standards seem fluid and prone to contention. For example, many businesses rely on the working spouse’s professional and/or personal goodwill for success. In other words, their reputation in the marketplace contributes to the value of a continuing business. Yet, how is such an intangible asset calculated for the purpose of determining the value of the business?
Why Is Having An Attorney On Your Side So Important?
Because of the degree of difficulty involved with a business valuation, any spouse in a divorce where the marital property includes a business should have an attorney to protect against exploitation. A business venture must be valued properly and fairly for the supporting spouse to receive reasonable compensation, but finding that dollar amount is far more complicated than most lay people can imagine. Often, professional valuators come into play, and even their assessments may be challenged. An attorney experienced in divorce cases will have trusted resources to provide solid business valuations. Together, the attorney and valuator will help ensure a fair settlement.
A party to divorce has plenty of worries with which to contend without adding the hazards of finding a proper business valuation. An attorney will work out this aspect as part of the divorce preparations so the business asset can be fairly accounted for in the final dissolution.
