The Basics of Business Valuation
In many cases, one of the most contentious issues in a family law proceeding is the valuation and distribution of marital property. When the couple owns a business together, the process can become even more complicated. Because of this, it is essential to obtain an accurate valuation of the business so the couple can fully understand the value of the entire marital estate.
Before determining the value of a business, it is important to know if the business is a separate asset or a marital asset. If the business was started during the marriage, it is likely a marital asset. If the business was started prior to the marriage, it is likely considered a separate asset. However, if the owning spouse contributed marital funds or efforts and/or the non-owning spouse contributed some of his or her income or marital efforts to the business during the marriage, there could be a marital component included in the value of the business.
There are three main approaches to completing a valuation of a business for family law purposes. A strong valuation tries to compare each of the following approaches to reach a consensus as to value:
1. Asset Based Approach – With this approach, the tangible assets of a business are given a value. A business that manufactures a product might best be valued this way. This approach can present challenges as some spouses may not be able to agree on the value of assets.
2. Income Based Approach – This method aims to determine the value of a business by assessing its present value to predict how much income the business may earn in the future. An income stream, historically and projected into the future, may be considered with this approach.
3. Market Based Approach – This approach evaluates other businesses of a similar size that have recently been sold. It can sometimes be difficult to utilize this approach as most businesses differ substantially from one another.
Any trusted and experienced family law attorney likely knows of a reputable business appraiser that he or she can recommend.
The attorneys at Hatcher Law Group are well-versed in these matters. If you or someone you know has questions regarding asset and property valuation, contact one of our experienced family law attorneys today to schedule a consultation.