Family Law: Valuing Business
When one party to a divorce is either self employed or has an ownership interest in a business, there are typically two issues that arise. The first is determining that persons actual income for child support and spousal maintenance purposes as discussed in another article. The second, which is discussed here, is how to determine the actual value of the business interest for property division purposes.
A business can not only be a source of income, it is also an asset to be divided. Like any other asset (house, retirement, car, investment, etc.), before we can award the asset to one party or the other, we need to know its value.
In many small businesses, especially sole proprietorships with no employees other than the owner, and it is a service business, it may have no value other than as a job or source of income. There may be the value of the assets, equipment, inventory and accounts receivable, but there is no value of the business itself that would be bought or sold by a third party. Therefore, there is no additional value to be considered in the divorce in dividing assets. No one would pay money to purchase your [plumbing, contractor, hair cutting, etc.] business, when they could just open up their own business. There is no good will in the business itself.
In many other businesses, the business is more than just a job, it is an ongoing concern that would have value to a third party who would pay money to purchase it. It has goodwill. If the owner died, the business could still continue and flourish. In these cases, the issue becomes, how do we establish a value. The best way for valuing business interests is often to hire a business appraiser. They are professionals who have expertise in valuing business. They look at the tax returns, bookkeeping records, they type of business, its future, the value of other similar businesses, and any other relevant factors to determine its value.
Once we have determined a value of the business, it can be added to the spreadsheet of assets, to determine a fair and equitable division of all of the assets.
If your spouse is self employed or owns a business, you should consider discussing your case with an experienced family law attorney who can help determine how to get it valued.