If you and your spouse are business owners facing divorce, your business will take center stage during the property division process.
There are three main options to consider in determining the fate of your company and two of those require a business valuation.
If you and your spouse decide to sell the business and split the profits, you must first know what the appropriate selling price should be. Consequently, you must hire an appraiser to perform a valuation. A valuation is also necessary if one of you decides to buy out the interest of the other. However, you will not need to go to the expense of valuation if the two of you decide to continue as business co-owners once the divorce is final.
An appraiser must define a standard of value for the business using hypothetical conditions. In a divorce case, there are usually two standards: fair value and fair market value. The court hearing the case will determine fair value. The other standard, fair market value, is the price at which the property would change hands if a willing buyer and a willing seller were under no compulsion to make the transaction. The appraiser must choose the correct standard based on a number of variables.
The income approach
One other option in determining the value of a business is the income approach. In this method, the appraiser will perform a valuation using the current value of anticipated future income.
When a business is the focal point of a divorce, there are a number of important matters to consider. Ultimate valuation, personal objectives and legal guidance will help business owners make the right decision concerning the fate of this important asset.