Business Valuations During a Divorce

 Posted on February 15, 2016 in Uncategorized

Once a business has been determined to be marital property, the biggest issue in its disposition during a divorce proceeding becomes to assign a value to the business. This, by its very nature, is a highly technical and complex process that requires not only experts in the law but experts with knowledge of business and asset valuation. Not only do businesses have a current value, they have the potential to realize income for the owners for a long time into the future, and because of this an otherwise amicable proceeding can quickly turn adversarial. The party who is attempting to retain ownership in the business will want to argue it has as little value as possible, while the party who is entitled to a percentage of the value will want to inflate its worth to the greatest degree that they can.

Approaches to Valuation

Determining the worth of a business will often require a number of different sorts of consultants to do correctly, from experts to appraise it from a hard asset standpoint to consultants knowledgeable with running similar businesses within the geographical area to forensic accountants to go over the books and reach a conclusion about the business' future earnings potential. There are three basic methods for coming to an accurate valuation of a business entity:

Assets Approach

- this method uses a fairly straightforward formula to reach a value: assets minus liabilities equals value. This may seem to be simple on its face, however complications arise when taking into consideration the issue of placing a value on both tangible and intellectual property of the business: devaluation, resale value, the intrinsic values of things like processes and patents or trademarks. All of these require experts in specific fields to accurately evaluate.

Market Approach

- this method is very similar to valuing a property in the real estate market: it compares similar businesses that have recently been sold in the area to get an estimate of the market value of the business at issue. Difficulties can arise, however, if no similar businesses have sold recently, and also in matters of determining how 'comparable' another business actually is to the business at issue.

Income Approach

- this method uses various formulas along with historical information to predict what the future profits generated by the business will be, along with the rates of risk and return inherent with the business. The income approach is the most commonly used method for establishing the value of a business.

Experienced Business Valuation Law Firm

When a business is involved in your Texas divorce proceeding it is critical that you retain a legal team that has the capability and experience to determine the accurate value of your business in order to protect your assets. At Clark Law Group, we have working relationships with the innovative professionals that you need, and a proven track record of getting the results you deserve. Please take a moment to discuss your situation with a member of our staff, online or by telephone at 469-906-2266 to see how our experts can help you emerge from this difficult time in your life in the most advantageous position possible.