One of the more potentially complex processes of a divorce case is that of dividing assets between the two parties. Some assets are simple to equitably divide. A joint bank account, for example, can sometimes be split as easily as just splitting the account balance at the time of separation.
However, not all assets are so easy to divide. This is especially true when it comes to business ownership. If a party owns a business, it is considered an asset to split equitably between the parties; but the value of the business can be difficult to determine. In this article, we will explore what business valuation in divorce cases entails.
How Does It Work?
Typically, a business is valued by Fair Market Value (FMV). This, in its simplest definition, refers to something’s value if it were to be sold on the open market. But not every jurisdiction defines or calculates FMV in the same fashion, and as such, attorneys, accountants, and other parties involved in a divorce case must be diligent and knowledgeable as they attempt to value a business.
Another factor is the fact that, in most cases, the assets of a business are not liquid. With that in mind, the question arises of how to value and divide non-liquid assets. Would the business be able to continue operations if these assets were to be liquidated? And what parts of the business belong to which party?
This brings us to the questions of separate versus marital property in the context of a business. If the business was started by one party before the marriage began, it is generally to be considered separate property and treated as such. Many small businesses, though, are started by married couples. In these cases the business may be considered marital property. Either situation can present complications.
One method of valuing a business is by comparing it to the prices at which similar businesses in similar markets have been sold. Another somewhat more common process is to assess the historical income created by the business and work from there. The method chosen will depend largely on the type of business you have and your goals going forward.
The accounts at Miod have the experience and understanding necessary
Bottom Line: Business Valuation is a Complex Issue
Regardless of the situation of a business (whether it is separate or marital property, whether it has primarily liquid or primarily non-liquid assets, in what jurisdiction it exists, etc.), the process of valuation of a business is complex and requires a strong understanding of tax codes and local laws.
The accountants at Miod have the experience and understanding necessary to handle the valuation process of any business in any divorce case. If you or a client needs this complicated process handled with care and expertise, look no further than Miod for all of your divorce accounting needs.