Divorcing couple

Avoid These Business Valuation Mistakes During Your Divorce

Going through a divorce is not easy. Divorce can be even more complicated when a family business is involved. Questions such as whether the company is a marital asset or if both spouses have an ownership interest will arise. Consulting with a North Carolina family law attorney is essential to ensure equitable handling of these issues. Getting the business property valued will assist with understanding how it will impact your divorce.

What is a Business Valuation?

A business valuation is an analysis of the amount a business is worth as of a specific date.  It is performed by a professional such as a certified business appraiser or certified public accountant. 

The professional will consider many factors in coming to their conclusion about the value. This includes the assets owned by the business such as cash, furniture, tools of the trade, equipment, inventory, intellectual property, and goodwill. The appraiser will likely also consider the debts or liabilities of the business, cash flow issues, and historical earnings or losses trends.

Standards Available for a Business Valuation

Several standards can be used to value a business. Fair market value, investment value, liquidation value, and book value are some options. The most commonly used standard is fair market value. This is the amount a buyer would be willing to pay, and a seller would agree to accept when neither party is under any pressure to engage in this transaction. Fair market value also presumes both parties to the transaction are reasonably informed about relevant details of the deal.

Common Mistakes to Avoid 

Investing in a business appraisal can be expensive, but it is crucial to hire a well-credential professional who has business valuation and litigation training or experience. Although hiring someone who does not have these qualifications may save you some money at first, it may cost you more in the long run, especially if the valuation becomes contested in court. Unfortunately, many couples often disagree about the value of a business, and their expert’s opinion will have to be evaluated in court. If you do not have a property-trained professional on your side, the court may reject your expert.

Another mistake is not getting your own appraisal. Each spouse should obtain an independent analysis to protect their rights. Your spouse’s expert may be biased towards the person paying their bill. The result may be that they over or undervalue the business to one spouse’s detriment.

Finally, you should request the professionals who value the business to sign a nondisclosure agreement. Even though a divorce may be ongoing, the company still needs to be protected from unnecessary exposure of sensitive or confidential information to its competitors or other parties. Examples of sensitive business information may include proprietary technology, trade secrets, internal management documents, revenue, salary, and paid benefits. Although this information may have to be produced to your spouse as part of the divorce, you do not want it to fall into someone else’s hands. If you have a question about your divorce and the impact it may have on your divorce, contact us for a free consultation.