The Importance of a Business Valuation for Divorce
A divorce can be scary, messy, and uncharted territory for both of the parties involved. As such, it is important to consult with your legal counsel to be certain you handle everything with confidence and care. If you or your spouse owns a business, it is important to consult with a business valuation expert. Below we help you understand why it is important to get a business valuation for divorce cases. In addition, we go over some of the common questions people have about business valuations when it comes to divorce cases.
Why is a business valuation important for divorce?
In the majority of cases, the most contentious and difficult issue in a divorce proceeding is the valuation and distribution of marital assets. In general, most people think of common assets such as the house, cars, retirement accounts, bank accounts, etc. Generally, these assets have a value that is fairly easy to determine. But sometimes, people forget about their business as being an asset. Your business has real value! As such, it is one of the assets that you will want to understand the value of during the divorce process. It is quite common for the business to be the most valuable asset of the couple. As such, it is vital to have a qualified appraiser, such as Peak Business Valuation, perform the business valuation for the business. Get started by scheduling a free consultation!
There are some common questions people have when getting a business valuation. Answers to these questions can help you understand more about why a business valuation is important!
Why is a third-party business valuation important?
Some people choose to try and negotiate the value of the business themselves. This sounds like a good plan in theory, but working with the opposing party in a divorce case can get tricky and messy. This is especially true when it comes to negotiating the value of the business. There are intricate and complex details when valuing a business for divorce.
Consulting with a business valuation expert like Peak Business Valuation, business appraiser Utah, will help you to determine a fair value for your business. An independent, third-party appraiser, also removes any bias that you or your spouse may have about the business.
How will the valuation expert value my business for divorce?
A business valuation expert uses a variety of approaches to value a business for a divorce case. They are very much the same as the approaches to determine the value of other businesses apart from divorce cases. These approaches generally include:
- Market Approach
- Income Approach
- Book Value or Asset Approach
Depending on your business, the above-mentioned business valuation approaches may or may not be appropriate. Consult with Peak Business Valuation, business appraiser Utah, to find out which approach is best for your business!
To learn more about the different valuation approaches, read Common Business Valuation Approaches.
What is the valuation date for a divorce case?
Another important aspect of a business valuation for divorce cases is when the valuation date is. Most divorce cases take several months, and some even take several years! As such, a valuation done at the beginning of the divorce process may not be the same as at the end of the process. Any given business may be operating very differently after a few years or even a few months! It is generally a smart idea to have a business valuation early in the divorce process. Doing so can help reduce costs, save time, and increase the confidence of both parties.
The initial valuation can also help with the negotiation process. Make sure to talk with your business appraiser to determine an appropriate valuation date. Sometimes this date may be the hearing/court date, other times it may be the date of separation. Peak Business Valuation will discuss this date with you during the initial complimentary consultation to ensure the process is as smooth as possible!
To learn more about why a Valuation Date is so important, read this article!
What is the standard of value used for divorce cases?
Standards of value are legal standards that define a set of hypothetical conditions under which the valuation expert values the business. The most common standards of value for divorce cases are “Fair Market Value” and “Fair Value.” Under the fair market value standard, the appraiser usually includes discounts, such as the Discount for Lack of Control, or the Discount for Lack of Marketability.
Whereas, the fair value takes into account the same premises as the fair market value but can be altered by the court. The most common alteration is to have the appraiser not include one or more of the above-mentioned discounts. The standard of value can vary depending on the state in which you live, as well as the courts’ jurisdiction statutes. As such, it is important to have your business appraiser work hand in hand with your lawyer or attorney to determine the standard of value the court dictates.
What happens if a solution is not reached about the business during a divorce?
Sometimes, if an agreement about how the business is to be sold or split cannot be reached, the court may dictate selling the assets of the business. As such, the court may require a machinery and equipment appraisal to be done in advance in case the court chooses to pursue this action. This appraisal is usually in conjunction with the business valuation. It may also include other appraisals such as a building or a land appraisal. Peak Business Valuation, business appraiser Utah, also performs machinery and equipment appraisals for divorce cases.
What are some of the common issues in business valuation divorce cases?
There are a number of common issues in business valuations for divorce cases. The number one issue that Peak Business Valuation, business appraiser Utah, sees on a regular basis is the withholding of information. The business appraiser needs the help and cooperation of the business owners so that the valuation can be as accurate as possible. Sometimes one, or even both parties withhold information. In other cases, they make obtaining information about the business extremely difficult. As such, it may be helpful to have a mediator, like your attorney, involved in the valuation process to avoid one party withholding information about the business. Although it may be more expensive to have the attorney involved as the mediator, the process will be much more efficient and effective.
How does Peak help with business valuations for divorce?
No matter your situation, Peak Business Valuation is here to help! Peak Business Valuation specializes in the early stages of divorce. We generally help most clients before they start mediation, or just as they start the mediation process. By working in conjunction with the lawyer, most of our clients never go to litigation. For more information see, Receiving a Business Valuation Early in Divorce. As part of the valuation process, Peak will work with both parties to get an accurate picture of the business in order to determine a fair value for the business. We will perform the business valuation as well as the machinery and equipment appraisal for your business if needed! During this process, we will work with your lawyer to make sure that the appraisal is completed quickly and accurately.
Divorce cases can be complicated, so it is important to have a business valuation expert, like Peak Business Valuation, business appraiser Utah, in your corner to help walk you through the process! Schedule a free consultation call so we can help walk you through the process!
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