Written by Michael Juilfs

Figuring out the value of a business in a divorce

Each aspect of divorce has its own set of issues. Children, shared finances, and businesses can all make the divorce process more complicated. In particular, a business adds a more challenging element and one that can become costly during the proceedings. In fact, determining the value of a business in a divorce isn’t easy. If you have a business involved in your divorce, here are some things you’ll want to know.

Prenups and Businesses

One way to safeguard your business during divorce is to have a prenuptial agreement in place. It primarily protects a pre-marital asset. However, if the business was created when you were married, or your spouse was involved in the business, it can add complexities.

If formalities were not followed when you created the prenup, it can affect the validity of it. For example, it could be null if the same attorney was representing both parties.

Business Valuation in a Divorce

The value of a business in a divorce is a complicated issue. It depends on many factors. The value is going to be affected by what type of business it is; for example, sole proprietorship, partnership, or corporation. In general, a sole proprietorship can be most susceptible to a complete division.

The next thing that happens in determining the value of a business in a divorce is the actual valuation. You will need to complete a few steps to get ready. They are:

  • Clean up the books – You’ll want the books cleaned up. This often means audited. Auditors are looking for areas of risk or where information is likely to be incorrect or misstated. The auditor will come up with a plan and design for approaching the audit, test the quality of internal controls, substantiate dollar values of accounts, and finish with a written report and opinion.
  • Prepare for an official valuation – The official valuation will need an appraiser (generally a CPA, financial appraiser, or business appraiser). You’ll also need to address your options for determining value. Talk it over with a professional or attorney to see what works best, and understand concepts like investment value, intrinsic value, or fair market value.
  • Review the Impact on the Business of any Buyout – What would happen if there were a buyout? Would it affect the value? The final step is to look into what impact a buyout would have, and discuss what options you have after the divorce for the business.

Valuation Difficulties

You may run into difficulties when working to find the value of a business in a divorce. The first thing that can pose a problem is determining whether a spouse is entitled to a portion of the value. This can create battles as one attorney argues the value of the business is low while the other says it’s high.

Even if the business was acquired separately, there is the question as to whether the spouse made any contributions at all, whether labor or monetary.

Another issue that commonly arises is “double-dipping.” This is when a spouse is awarded twice; once through the distribution of assets, and again through calculating income available for support.

Work with Experienced Professionals

In the end, experienced professionals should handle the complexities of a business valuation. Not only can it prevent increasing an already costly aspect of divorce, but it can also help avoid issues that come up during the divorce proceedings.

A collaborative divorce may also work to your advantage in agreeing on the value of a business, without the extra hurdles.

If you have questions about collaborative divorce or how to determine the value of a business in divorce, contact a BestLegalChoices.com professional for any questions.

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