Business Valuation in Divorce Proceedings
Almost all court cases require certified business valuations
A divorce not only ends a marital relationship, it can end a family business relationship. Even if only one spouse has actively participated in a business, the non-participating spouse may have a community property interest or a claim for the use of community funds. If negotiation or courts are needed to determine the agreement of the business value, a certified business valuation might be imperative, especially due to the fact that courts have broad discretion in how to determine the business value.
When a business is small with a low value and the spouses can agree on its worth, then the parties can simply agree on a business value. With a larger or more complex business, especially when spouses cannot agree on the business value, accurately valuing a business can be one of the important parts of a divorce proceeding. When a business has substantial goodwill, the value of a business over its assets, it becomes even more important to get a certified business valuation.
Lower Cost Option
To lower the costs associated with needing a valuation, the parties attorneys may consider hiring one well-respected business appraisal company to offer an objective opinion as to the value of a business. We can provide this option.
Spouses who own their own business often have strong personal feelings as to the value of their business. Sometimes it is difficult to think of splitting the value of a business that they have worked hard for and still retain a viable company. In our experience, the spouses’ idea of value is rarely accurate. Many times in divorce cases, their belief is that their business is worth less than it is, due to the need to split the value with a spouse. This is different from selling a business not involved in a divorce, where the owner generally wants and believes the business value to be high. Therefore, it is almost always desirable to objectively determine a reasonably accurate value for a business involved in a divorce. A divorce mediator or judge will appreciate objectivity.
Business Valuation Date
The date of the business valuation is important in divorce cases. Both parties need to agree on the valuation date. A business valuation date close to the mediation or court date is best. If a business appraisal is initially done, and the divorce case is extended, we will work with you on updating the valuation to be accurate, to minimize this risk and cost.
We have been acknowledged as an expert witness in several jurisdictions. When needed to give support for negotiations or testify in a divorce court case, it is imperative that your business appraisal expert witness be able to explain the complexity of a business valuations in a clear and concise manner. Judges, and many times lawyers, are not experts at business appraisal practices and methodology. We plan the business valuation engagement as if we will be an expert witness for your case.
We use all 3 of the generally accepted approaches to value the business, namely asset, income and market approaches. Each approach can have one or more valuation methods. We use up to 5 methods in our valuations. We research and strategize the actual methods used for your case.
We make adjustments to the value based on different ownership characteristics:
Controlling v. Minority Interest
Ownership structure (C-Corp, S-Corp, LLC, sole proprietor, etc.)
Marketability v. Non-Marketable
Key Person dependency
Key Customer dependency
We address any double-dipping issues exist and adjust the business valuation accordingly. Double dipping, resulting in a higher business appraisal, can occur when the valuation includes owner compensation.
Certified Business Valuation
To obtain objectivity, parties to a divorce proceeding many times need to hire a professional certified business appraisal expert to assist their attorneys in determining the value of businesses. As a certified business valuation firm our team has the education, training, knowledge and experience to determine the value of businesses to a reasonable degree of accuracy.