If the parties to a divorce own a business, or a share in a business, it is a valuable asset to be considered and should be valued. In cases where only one spouse works in the business he/she may suggest that they both know its’ value because for years they have lived off the business and there is no reason to spend money hiring experts. What a business “throws off,” or what the parties have been taking out of the business, however, even if accurate, is only one aspect of its worth– not its true value. For example a dentist may bring home a certain amount each month; but the dental practice has value extrinsic to the dentist’s salary. There is value in the practice client base, its equipment, its reputation, its’ location, perhaps its’ building—and a certain amount of the value of the business may be based upon the personal “good will” and reputation of the dentist.
The Business is a Marital Asset and Gets Divided
The party who has built up the business and worked it day in and day out, may feel that it is his/her business and the other spouse has no entitlement to it. He/she may resent having to share the business upon divorce. Unfortunately, the harsh reality is the business is a marital asset, and just like the marital home, bank accounts, and retirement, etc., it is subject to equitable division. And, unless the business is being sold, reasonable and fair division is not possible without a proper assessment of its value.
Hiring a Qualified Business Valuation Expert
Each party has the right to hire a Business Valuation Expert. When considering whom to hire, the qualifications and background of the expert is important. While an accountant may be able to review the numbers, it is preferable, especially for in-court testimony, that the expert have a recognized national certification as a CVA (certified valuation analyst).
The business valuation report should include an in-depth analysis of numerous factors essential to a final conclusion. Among those factors should be: the company background and history; company financial information and analysis (including historical data and future income stream); a discussion of personal goodwill (if relevant) and the method used for the valuation. The valuation should include a comparative analysis of similarly situated entities both locally and within a market that is relevant. Oftentimes when each party has hired well-qualified business valuation experts the valuations come back within amounts close to each other–giving the parties greater comfort in the quality of the valuation.
Should You Stay on As a Partner in a Business Post-Divorce?