If you are a business owner headed for divorce, your business will be the focal point during the property distribution phase.
In order to determine the equitable distribution of this important item, your attorney will see that a proper value is placed on the business.
Let us say that you founded your travel agency two years after you married. Therefore, the agency is a marital asset the court must divide fairly between you and your soon-to-be ex. Before that can happen, however, a business appraiser must place a valuation on the agency so that the court can determine how best to divide the asset. There are two basic types: fair market value and fair value.
Fair market value
Basically, “fair market value” is the price a buyer is willing to pay to a seller if neither party was under pressure to conclude the transaction. In making a determination, the appraiser will often use discounts, such as a discount for lack of control or marketability.
The meaning of the term “fair value” depends on its use. Minority interests are not normally involved, and it is up to the court to determine fair value.
In divorce cases, one of the methods most often used to determine value is the income approach. The appraiser would use the current value of future income that records show the business should generate to arrive at a business valuation.
Double dipping refers to a situation where a spouse may receive an award of income from the business during the distribution of assets and again during the calculation of income that is available for support.
The statutes of the jurisdiction in which the divorce occurs will be determining factors in arriving at the applicable standard of value for a business. Explore your legal options. When it comes to something as critical as a valuation for your business, the right team of professionals can add peace of mind to the stressful effort of business valuation during the property division phase of your divorce proceedings.