“They are no longer two, but one….” Marriage… the most precious, sacred, and happiest part of our lives. But sometimes what we plan and what we expect become the unplanned and the unexpected. There are situations that are beyond our control! Like divorce: no one planned for the marriage to be broken after a few or more years of marriage, but it happens.
Divorce can be a complicated, argumentative, and often an emotional journey. There are many decisions that need to be made along the way including the equitable division of marital assets created during the time of the marriage. When the couple splits, the assets must be split. This includes the house, the car, the investment portfolio, and the business, if there is one. The divorce proceeding (either collaborative or not) can be even more complex and costly when one of the spouses holds ownership in a business.
It is difficult to split as a couple. But it is even more difficult, if not impossible to physically split an asset like a house or a business. It’s not as though each spouse gets one half of the house! The process is then to agree upon the value of each asset, sum the total value of all assets and divide by two. Each spouse gets one-half of the total value. It is easier then to decide who will take ownership of each asset.
Valuing Public vs Private Companies
It is difficult to value a private company compared to a public company. The way that we value a public company is on the stock market; you can see what the stock price is. Many online services will publish this. It is quite easy to see the value of the public company, but private companies don’t have that external validation of their value, unless the business was recently purchase or sold.
In divorce, business owners can guess what the value of their business is but it’s not a good idea. Guessing the value of the business can lead to inaccurate results which will have consequences for both the business owner and for the divorcing partner. It may also make the divorce process worse because there is a natural bias when guessing the value. Decisions made today on the value of the business can have long-term real wealth consequences. That’s a very risky thing to do.
Divorce attorneys are experts in the legal arena but may not be as knowledgeable regarding the financial aspects of a divorce. Hiring an independent business valuation expert can help in several ways:
- Help the marital parties (and their lawyer/s) calculate and understand the value of any ownership interests in businesses.. A business valuation expert can help identify the fair market value of the business.
- Help the marital parties, (and their lawyer/s) calculate and understand the income available for spousal support. The business valuation process aims to measure and understand the earning capacity of the business. Also, a business may be paying expenses on behalf of the owner, which could potentially be included as income available for support.
- Help the marital parties (and their lawyer/s) determine the appreciation of value of the business during the marriage, including the appreciation of any ownership interests in businesses.
- Help the martial parties (and their lawyer/s) understand the tax implications of the division of marital assets. Trust an expert to help navigate through the ever-changing rules and regulations surrounding tax matters.
Divorce litigation is not an easy process, and when a business is involved can be more difficult, hostile and emotional. A business valuation professional can help you calculate and understand the financial implications.
Don’t risk your wealth. Trust Troy Valuations to deliver an unbiased evidence based conclusion on the value of the business.