Is a Business Valuation Necessary in Divorce?

Depends. I often start a blog post with questions often asked during a divorce; only to find myself knowing that it is not simply a Yes or No question.

You need to first ask the following questions:

  1. Is the value of the business greater than the owner? If the business is single person LLC where a service is provided, it is often only an alternate to other gainful employment. This often includes professionals such as attorneys and accountants or others such as personal trainers and life coaches.
  2. Is it a “saleable” business? Meaning, if we put this business on the market, is there a potential buyer. Some businesses are so unique that there is no market for their purchase.
  3. Is there a value above the value of the assets? A valuation can be useful if there goodwill that needs to be explored or client/customer lists that have value.
  4. Can the ownership be divided between the spouses? If it is a single member or there is buy/sell clauses that limit spouse ownership, one party may have to buy out the other.

A business valuation may take on many forms. For example, in a collaborative dissolution often the parties will utilize one valuation expert to provide a neutral valuation for use in determining value of assets and potential division of property. In litigation, a thumbnail evaluation may give a party at least an overview and vague idea of the value of a business, while a more comprehensive valuation will be necessary if presenting to court for trial. Know that every business has a value, which can be determined using:

  • Income-based approach
  • Asset-based approach
  • Market-based approach

If you are going through a divorce and there is a closely held business, a valuation may be necessary or at least useful before separating marital assets. You should discuss with your attorney the various types of valuation, the relative cost and the usefulness if the case proceeds to litigation.

For consultation regarding divorce/dissolution, contact Michael Bouldin by following this link or call 859-581-6453 to schedule a consultation.

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