Valuing a Business in Divorce

If you or your spouse owns a business and you are getting divorced, it is important to have the business properly valued for purposes of determining an appropriate distribution of the marital assets. Below are examples of methods used for valuing a business:

Standard of Value

In non-divorce valuations, the standard of value method utilizes the fair market value of the business which is what a hypothetical buyer would be willing and able to pay in an arm’s length transaction. In most divorce cases, there typically is not a pending sale of the business interest, so many states have recognized that the fair market value in a divorce situation is different. Thus, it is essential that you work with a divorce attorney who is experienced valuing a business.

Market Approach

Depending on the size of the business, there may or may not be truly comparable companies. If you are dealing with a public company, make sure to account for the different attributes and levels of risk between the companies being compared.

Income Approaches

Trying to predict the future income of a company can be a little like trying to predict the weather accurately. Additionally, in many jurisdictions the ex-spouse is not entitled to any benefit from post-marital efforts. Thus, using an income approach method can be speculative in some cases but useful in others. For example, if there are future contracts in place, predicting future income may be easier.

Reasonable Compensation

Certain adjustments must be made for reasonable compensation when it comes to valuing a business. You must also look at discretionary expenses, personal expenses disguised as business expenses and if family members or close friends are being paid an inflated salary.

To learn more about how to value a business in Florida to ensure that you obtain an appropriate property settlement in your divorce, contact the Men’s Divorce Law Firm to schedule a consultation with a caring professional, and aggressive advocate for men’s rights in divorce, child timesharing (custody), and paternity matters.