Going through a divorce as a business owner can get messy in a hurry. If your future ex-spouse is a co-owner in the business, it is likely they or you want out which creates a potentially costly exit event and a possible stalemate over value, buyouts and equity.
If your future ex is not an active owner in the business, they likely worry they’ll be taken advantage of, leavingmoney on the table, which could lead to them aggressively asking for more than they’re entitled to. Regardless of your spouse being a ‘friend or foe’, you can almost guarantee that a business valuation will be required as part of your divorce decree and settlement to ensure fairness to all parties concerned.
Who conducts the business appraisal is critically important to mitigating financial risks, unnecessary stress and many years of pressure on your business and you, individually. You have a few options at your disposal, all of which come with varying degrees of risk and expense:
- Calculate the company’s value on your own – this approach creates significant risk to both spouses and is an awfully bad idea. Even if you both agree with this approach, the parties are bound to undervalue or overvalue the business, thus exposing one party if not both to unbalanced splits of business and marital assets. By far, this the cheapest and highest risk approach – you get what you pay for.
- Together, you hire an independent forensic accountant to conduct a business valuation on behalf of both parties. This means using a jointly hired expert that both spouses agree to who will bring pricing accuracy and objectivity. While this is a viable path to pursue, it still creates risk if one or both parties vehemently disagrees with the valuation conclusion and decides to spend money on another forensic appraiser. Hopefully, this can be avoided but actively communicate with your lawyer and spouse on expectations in advance.
- Each spouse hires their own forensic accountant to represent their personal interests in the divorce proceedings. Thisis a viable path for many situations and may ultimately be the least costly to all parties financially, mentally and emotionally. This approach allows two credentialed experts to independently assess the past, present and future performance of the business, its tangible and intangible value and what a fair market value truly is. Once both accountants have completed their valuation, the spouses and their attorneys review the findings and seek to find a common ground value. If this is not viable, the spouses will ultimately cede the decision to the court where expert testimony is likely required so that a thorough analysis of both appraisals will inform the court’s final ruling.
At Fair Market Valuations, our business valuation partners are experienced in a wide range of appraisal assignments across industry, geography and owner needs. The experience of going through a separation and divorce is stressful with considerable amounts of fear, uncertainty and doubts. Our experts are seasoned in determining business value in support of marital disputes and divorce matters, helping couples navigate toward a fair and equitable outcome for all concerned.
For more insights on the role of business valuation in a pending divorce, here are some useful resources: