Valuation helps determine the fate of a business during divorce

On Behalf of | Jan 9, 2023 | Property Division |

There are three basic options to consider when the disposition of a family business becomes the focal point in a divorce.

You will need a business valuation for two of the three, but you can avoid the expense of this requirement if you decide on the third option.

About standard of value

In a divorce process, there are two generally accepted standards for use in business valuations. Fair market value is basically the price at which a property “would change hands between a willing buyer and a willing seller” when both parties understand the relevant facts concerning the sale. The other standard, fair value, may result in a different estimate of worth for the business. The court with authority over the divorce case will determine fair value.

Putting the business on the market

If you decide to sell the business outright, you will first need a professional appraiser to perform a valuation to determine the correct selling price. When you find a buyer, you and your spouse can split the profits. However, if the business does not sell quickly, the two of you may have to work together longer than you anticipated.

Performing a buyout

If you want to purchase your spouse’s interest in the company, you will also need a valuation in order to determine the appropriate price. If the funds for the buyout are not immediately available, you could consider an asset exchange in an amount equal to the worth of the business.

Continuing as co-owners

If you anticipate an amicable divorce, you might consider keeping the business and continuing as co-owners. In this case, you will not need a valuation. If you believe you can go on working together, this might be the best solution of the three.