Divorce can be a complex process, especially when one or both individuals involved own a small business. Accurately valuing these companies is crucial in dividing marital assets fairly and ensuring both parties receive equitable treatment. There are some important considerations for appraising a business during a divorce:
Engage with an Experienced, Credentialed Valuation Expert
Business valuation is a specialized field. Engaging a certified appraiser with experience in divorce cases ensures an unbiased and thorough assessment. Look for professionals with credentials like Accredited Senior Appraiser (ASA) or Certified Valuation Analyst (CVA).
Ensure the Company's Books are Current and In Order
It will be crucial that accurate financial records are available for the appraiser and that the most recent statements have been prepared. If they are lacking, work with an independent forensic accountant who can review your records and prepare current documents.
Valuation Methodologies
The appraiser will consider and rely upon different approaches to determine a business's worth:
- Income Approach: Examines the business's earning potential and cash flow.
- Market Approach: Compares the business to similar ones recently sold and factors in gross revenue and net income.
- Asset-Based Approach: Focuses on the company's net assets minus liabilities.
The choice of methods utilized will depend on several factors, including the industry and current operational state of the company.
Separate Marital from Non-Marital Assets
If the business was started prior to the marriage date or includes inherited or gifted assets, only the marital portion may be subject to division. Proper documentation and records are essential to differentiate these. Speak with an attorney familiar with the state laws to adjust for these issues.
Variables Driving Value
The appraiser will communicate with the business owner and gather specific data that will impact the business's value. Make sure that you provide full disclosure regarding topics such as revenue trends and profitability, how the market and industry affect your operation, whether there are ownership (buy/sell) agreements in place, and what discretionary adjustments should be made to the income and balance sheet.
In summary, disagreements over value will likely occur. Be prepared to negotiate or involve the court if necessary. Providing clear, well-supported valuation reports can help minimize conflicts. Dividing a business during divorce is rarely straightforward, but with the right approach and expert guidance, you can ensure a fair outcome. Transparency and accurate record-keeping are the biggest keys to creating a successful outcome.