Receiving a Business Valuation Early in Divorce

Receiving a Business Valuation Early in Divorce

At Peak Business Valuation, business appraiser Utah, we receive many calls about valuing a business due to divorce. It is common to be unclear about where to start. Divorce is a difficult process, and the division of assets can often be strenuous and complex. Some assets are easy to value, like a bank account or a car. Whereas a business, however, requires expertise to arrive at a value that is fair to all parties involved. Getting a business valuation early in the case of divorce can eliminate headaches and decrease costs. In this article, we will provide an overview of what happens to a business in the case of a divorce. We will explain a few reasons why getting a business valuation early in the divorce process can facilitate a fair distribution of assets.

How does divorce affect a business?

First, there are many scenarios that could occur concerning business ownership in the case of a divorce. A business could be owned by one spouse or co-owned by both. The business could have been acquired with separate assets before the marriage, or marital assets which belong to both spouses. The business could have been grown with marital assets, giving both parties a claim to the assets. As such, different scenarios will need different solutions and it will lead to changes in the business. A few options parties may choose to do include selling the business and splitting the proceeds, buying out the other’s ownership, or even liquidating the business. The sooner you answer these questions in a divorce, the less expensive the answers will be.

Why is it important to get a business valuation early in divorce?

Litigation takes more time

First, divorces often settle in mediation or litigation. In mediation, a mediator helps both parties come to mutually agreeable solutions. Through this process, both parties come to an agreement about the division of assets. The mediator listens to both parties and acts as an unbiased third party. Peak Business Valuation, business appraiser Utah, works with individuals in divorce cases who are choosing to pursue mediation rather than litigation.

Litigation, on the other hand, is a process where each party is represented in court before a judge. The judge makes the decision about the division of assets. Litigation can take more time, and each party prepares a business valuation. The judge decides which business valuation represents the fair solution. It is becoming more common for parties to make decisions in mediation to avoid the lengthy process of litigation.

Litigation is expensive

Next, litigation is not only lengthy, it is expensive. Parties hire business valuation experts to prepare business valuations for each party. One attorney will seek to increase the value of the business, while the other will seek to decrease it. A spouse may hire a forensic accountant to comb through the financial history of the business. Lawyers bill for the extra time the forensic accountants need to catch them up to speed. The parties may choose to bring in paid expert witnesses to each present a case to determine the validity of the business valuations. Costs start to stack up as parties pay for two business valuations, increased legal costs, and hire more professionals.

“He-said value” VS. “She-said Value”

Last, one may question how to resolve the differences of fact. One party may claim they spent this much time working on the business, while the other may disagree. You may wonder who a business appraiser will listen to in such a situation. The answer is both. Ultimately, the value of the business should be held to the standard of fair market value. Fair market value is the value of a business between a willing buyer and a willing seller who both have full knowledge of the facts and are under no compulsion to transact. 

A business valuation expert listens to both parties. They consider all the facts and then listen to the market. Holding a business to this value prevents there from being a “he-said value” and a “she-said value.” To achieve this, both parties will act as a client to the business appraiser. This ensures that parties disclose all relevant facts to determine a fair market value. The business valuation gives both parties the confidence to make fair negotiations with the help of a third-party. Peak Business Valuation, business appraiser Utah, provides business valuations for divorce for mediation purposes. 

Summary

These are a few reasons why you should consider getting a business valuation early in a divorce. You can save time, cut costs, and increase your confidence by starting now. At Peak Business Valuation, business appraiser Utah, we provide these types of business valuations to aid the mediation process. Our goal is to ensure that you are comfortable and confident in the value of your business. We are happy to answer any questions you may have. You can contact us via email or by scheduling your free consultation below!

 

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