Growing a company can be profoundly challenging, even when your family is intact and your spouse is behind you. Divorce makes the entrepreneurial journey even more fraught. Our family law team has substantial experience leading business owners through the divorce process. We can help you get the clarity you need and ensure a fair outcome.
What happens to a business when assets are divided in divorce?
When one or both parties in a divorce own a business, it is usually necessary for the court to value and consider these business interests when dividing marital property. A CPA usually performs what is called a business valuation. Valuing professional practices and business interests can be a very difficult problem because there is no agreement on a uniform method to carry out this evaluation.
Courts are usually reluctant to accept book value only for a business. While earnings are usually the most important factor in valuation, many other factors can be taken into consideration as well, including market value, which is obtained by comparing the business with sales of a comparable business or the price at which the property would change hands between a willing seller and buyer. Intangible assets like goodwill are also taken into account. The methodology used to perform these various valuations can also vary. With the “capitalization of earnings” method, expected earnings are “capitalized” using a risk-adjusted rate of return. Another common method is the excess earnings method, which is a blend of income and asset-based approaches. This method can also be used to determine the value of both tangible and intangible assets. The new tax law may also greatly affect business valuations because of the restrictions on deductions and the changes in tax rates.
Well-qualified experts can reach different conclusions about value; however, it is necessary to obtain a value on business interests in a divorce. In high-income cases, the process can become especially lengthy and complicated. The team at Halligan LLC can help you navigate this high-stakes process.