Do I Need to Perform a Business Valuation During My Divorce?

 Posted on April 14, 2023 in Divorce

Divorce can be an overwhelming experience for anyone, but it can be even more complicated for business owners. A family business may have taken years to build and develop, and a person who has put so much time and energy into their business efforts will most likely want to avoid any issues that could affect their ownership of the company. At the same time, a business is likely to be a valuable asset, and both spouses will want to make sure it is considered properly during the property division process.

To ensure that all marital assets can be divided correctly, it will usually be necessary to perform a business valuation. By taking steps to determine the market value of the business, spouses can place a monetary figure on business assets, giving them a better understanding of the total value of their marital estate. They can also determine whether there are any liabilities that will affect either party and whether a probable increase in value of the business in the future will benefit the person who will own the business. Ultimately, the information gained in a business valuation will inform the final decisions made about the division of all marital property.

Ensuring That a Business Valuation Is Accurate

A business valuation may involve one or more different approaches that take different types of information into account. In many cases, the simplest approach is to add up the value of all business assets and subtract any liabilities, which will give an estimate of the business's worth. However, this may not provide a complete picture of the value of the business. To gain a better understanding of the current and future value of the business, factors such as earnings, profits and losses, and projected growth may also be considered. In cases where couples expect to sell a business during the divorce process, they may gain an estimate of the potential sale price by reviewing recent purchases and sales of similar businesses.

To ensure that the value of a business can be determined accurately, couples will want to:

1. Hire professionals: Qualified appraisers or accountants with experience in business valuations can ensure that a valuation will be performed in accordance with accepted standards and that all appropriate information is taken into account.

2. Gather all relevant information: A business owner should be sure to provide all appropriate financial statements, tax returns, and other documents and data to appraisers or accountants. This will ensure that the determination of the value of the company will be based on up-to-date information while taking the correct details into account.

3. Be prepared to negotiate: Once they have a full understanding of what the business is worth and what benefits will be available to the owner of the business in the years to come, spouses can work to negotiate agreements. A spouse who wishes to maintain sole ownership of the business may have several options for buying out the other spouse's share of the business, such as by ensuring that they will receive other marital assets of the same value, making a monetary payment, or setting up a payment plan. In some cases, spouses may choose to continue to co-own a business, but they will need to be clear about issues such as ownership percentages and ongoing responsibilities.

In addition to providing invaluable information that will inform the property division process, a business valuation can have other benefits as well. It may help to identify any issues that could affect the future performance of the business, such as significant debt or changes in the market. It may also demonstrate some concerns that the business owner may need to address. For example, if a valuation finds that the business is dependent on the owner for its success, adjustments to policies and procedures may need to be made to allocate responsibilities to other employees and ensure that the business can run more smoothly. This can ultimately improve the future value of the business.

Contact Our Hurst Business Asset Division Lawyer

If you own a business and are going through a divorce, it is highly likely that you will need to perform a business valuation. At Daniel R. Bacalis, P.C., our Tarrant County property division attorney can advise you on the factors that you will need to consider during this process. By working alongside financial professionals, we can help you determine the best ways to divide your marital property while protecting your financial interests. To learn more about how we can assist with divorce-related issues, contact us at 817-498-4105 and schedule a free consultation.

Sources:

https://www.smbceo.com/2019/11/19/how-to-value-a-small-business-for-divorce/

https://www.forbes.com/sites/frawleypollock/2022/02/24/how-to-lessen-the-impact-of-divorce-on-your-business/ 

https://www.investopedia.com/terms/b/business-valuation.asp