Guiding You Through Complex Legal Matters

Guiding You Through Complex Legal Matters

Standards of value apply to the family business in a divorce

On Behalf of | Dec 1, 2021 | Firm News

If you and your spouse own and operate a family business, this asset will become a focal point during the property division phase of your divorce.

Unless you plan to continue as co-owners following the divorce, you will need to know how much the business is worth to sell it. An appraiser must apply a standard of value to make this determination.

First things first

Like many divorcing couples, you and your soon-to-be-ex may not agree on the worth of your family business. In this case, a professional must bring his or her expert opinion to bear to help the court determine value. Before going ahead with an appraisal, the professional must define a standard of value.

Two standards

Your appraiser may go with “fair market value.” The common definition of this standard is the price at which a property “would change hands between a willing buyer and a willing seller…when both parties have reasonable knowledge of the relevant facts.” Under this option, the appraiser would likely apply discounts, such as a discount for marketability representing the cost and time needed to get the business to market. The other standard is the “fair value” of the company, which usually contains no discounts and which the court may dictate based on the nature of the business.

Possible fraud

As if the process of placing a value on a business is not complicated enough, some business owners will try to conceal assets, overstate expenses or understate revenue. If you suspect your spouse of such activities, it may be wise to add a forensic accountant to your legal team.