Divorcing When a Business is Involved
Dissolving a marriage is complicated enough without the additional anxiety associated with valuing a business for the purpose of equitable distribution. The attorneys at Bikel & Schanfield can help.
The essential challenge in valuing a business is determining the answers to three questions:
- What is the fair market value of the business?
- What date should be used to determine fair market value?
- Is the business marital property, separate property, or partially marital and partially separate property?
Answering these questions can be challenging, regardless of whether your business or the business of your spouse is a corporation, partnership, sole proprietorship, or limited liability company.
Determining the business’s value in a cost-effective manner is an essential step to take when engaging in divorce negotiations or legal proceedings.
What Are the Basics of Valuing Businesses in Divorce Proceedings?
The first step in the valuation process is to determine whether the business itself is a marital asset or separate property.
The two questions to ask are:
- Was the business started or established during marriage?
- If the answer to the first question is no, did the value of the business increase during the course of the marriage as the result of the efforts of the owner-spouse?
If either of those questions is answered in the affirmative, then any interest in the business is a marital asset subject to equitable distribution.
Exactly how that asset will be valued - the valuation method - is a multi-layered process with which the attorneys at Bikel & Schanfield can assist. We have decades of experience unwinding difficult business valuation questions and giving our clients the clarity they need to be fully informed when entering into a divorce agreement or successfully navigating the legal system in any divorce proceeding.
What Valuation Method Will Be Used?
Valuing a business involves analyzing invested capital values, obtaining cash flow information, looking to liquid cash, and identifying total assets held.
These analyses can take significant informational input and cooperation, and require sometimes-difficult forensic research to determine a reliable and supportable valuation.
In conflictive cases, courts will likely order an appraisal of the business, and that appraisal will attempt to determine the business’s fair market value using a range of techniques.
One approach - the income approach - used by valuation experts, looks to the future potential income stream of the business being valued and uses the net present value of that amount to determine the current value. This will involve a range of complicated formulas and historical data to determine normalized cash flow.
Another prominent approach is the market-based determination that looks to comparable businesses that have sold recently and takes lessons from those businesses to value the business at issue in the divorce.
A third valuation method looks to the hard numbers of the business at issue and values the entity by determining the balance of basic assets and liabilities.
In the latter valuation approach, assets considered will include both the tangible (current inventory, real estate, the capital infrastructure supporting the business) and intangible (business accounts, copyrights or patents, loans).
How Complicated Can Valuing a Business in a New York Divorce Become?
The short answer is: Very.
Not all business valuations are marred with ultra-complex questions or intractable disagreements, but businesses obviously range in size and complexity.
When assisting clients with business valuation questions in anticipation of a divorce settlement or litigation, we identify the necessary information to make a sound valuation, and make the preparations that will no doubt factor into the ultimate valuation assessment.
We can also help understand when to expect or assert a challenge to a valuation approach. Sometimes, we seek the advice and assistance of experts - like certified public accountants, accredited senior appraisers, or certified business appraisers – who can be especially helpful in the context of a significantly larger or more complicated business.
Our matrimonial law business attorneys know when to seek additional assistance and can help speed you through an otherwise protracted process.
If a business valuation is a less complicated matter, the parties can sometimes cooperatively agree on values for the business. The divorce attorneys at Bikel & Schanfield can assist you in a range of potential business valuation-related circumstances, and we will help you obtain the best possible solution.
Divorce and Business Valuation Lawyers Can Demystify the Process and Make Sure You are Fully Informed and Prepared
We have considerable experience in the field of divorcing clients with business valuation questions ranging from straightforward issues to complex valuations.
If your financial assets are at stake in your divorce proceeding, and the business interests of one or both spouses play a role, then you should obtain the counsel of experienced and competent divorce attorneys. We hope you will consult with the business valuation team at Bikel & Schanfield, New York matrimonial and divorce attorneys.