Valuation of business and assets critical during a divorce

It is important to properly value business assets during a divorce.

Property division is often one of the most highly contested aspects of a divorce. Property division issues are often at the root of ongoing disputes amongst couples who find themselves in the midst of protracted divorce litigation. This can be the case when one spouse feels like he or she isn't getting a "fair" share of the marital assets. Before any attempt is made to equitably divide marital property, however, a fair assessment must be made of the true value of the couple's marital estate.

If a spouse individually - or the couple jointly - owns nothing but tangible, easy-to-value property, then this crucial step may be relatively simple. However, if intangibles, property with a fluctuating value, things with more sentimental value than market, or difficult-to-value assets are present, then a proper valuation may be much more difficult.

The valuation process is critical to protecting your rights to the wealth you have accumulated. It is not unusual that valuation experts will be necessary to protect your interests.

Small or closely held businesses and professional practices

One of the most difficult assets to properly value during a divorce may be a small, closely held, or family business. This can include all manner of companies and professional practices or any ownership interest held in one.

Proper business valuation depends on many factors, including:

  • Type of business
  • Location
  • Valuation method chosen
  • Other economic and non-economic factors

It may be that a value approximation could be found by comparing your business to the real market value of those offering similar goods or services in your geographical area, but this method has drawbacks. For example, if you are the only one offering such a service, then finding something to compare your business to may be difficult. Furthermore, if your business is one of the most established of its kind and is well-respected in the community, then its value may be measured (at least in part) based on your personal skill, experience, reputation or professional goodwill. In Texas the existence or absence of Personal Goodwill is a significant factor in valuing these entities. In that scenario, it may be more difficult to assign any monetary value to the business, as goodwill may not qualify as property subject to division by the court.

If you have a partnership or shareholder interest in a business, then valuing your portion of it may be even more complicated. In that case, you might have to go with what is known as the "investment method" of valuation. This method relies not upon what the fair market value of the business is, but instead what your particular interest is worth to you as an individual investor. Once determined, the value of your share in the company or practice may be counted as part of your marital estate, regardless of whether or not you were asked to sell.

In order to assure that you and your spouse both receive a fair and equitable portion of marital assets during a divorce, proper valuation of assets is key. To learn more about divorce-related business and asset valuation, contact The Webb Family Law Firm. Call them today at 972-863-0279 or send an email.