Businesses are not like bank accounts. You cannot simply look at a statement to determine their value. They can be quite challenging to value, which adds an extra layer of complexity to a divorce when one or both spouses own one. If you are going through a divorce and you or your spouse owns a business, you may be concerned about the necessity for a professional business valuation. Here are some things to consider:
Is It Separate Property Or Marital Property?
Texas is a community property state. With few exceptions, property acquired during the marriage is labeled community property and subject to division. Property acquired prior to the marriage, as well as inheritances and gifts, is considered separate property and not subject to division. Some people believe that if they obtained a business prior to the marriage it is separate property and not subject to division. However, characterizing a business as community or separate property is rarely so cut and dried.
While a business may have been obtained prior to the marriage, it is likely that assets were invested in the business during the marriage. Marital assets may have been used to make repairs, purchase equipment, invest in an advertising campaign or more. The business may have increased in value during the marriage. These factors mean that the business is both community and separate property, and the portion that is community property is subject to division during divorce, making it necessary to determine a value for the business.
How Much Is The Business Really Worth?
Getting a precise value of a business is no simple task. Think of everything that is encompassed by the business: the real estate, the equipment, the inventory and more. Then there is revenue and cash flow. And what about intangible assets like business goodwill? Matters can become more complicated if there are other partners who own stakes in the business. To sort through all of this, it may be necessary to hire a professional business appraiser.
This is a step many are hesitant to take, simply because of the expense involved. It is important to take a careful look at the situation before taking this step. Is the business's value sufficient that it is worth investing in an expert to conduct a valuation? Is it possible that you and your spouse can agree on a value of the business? If you can reach an agreement on the value, hiring a business valuation expert may not be necessary.
However, you may want to have an attorney experienced in business divorce provide you guidance before you sign an agreement to ensure that nothing is overlooked and you are being treated fairly. You still have the right to have visibility to all financial information about the business if your spouse is the owner, or if you are the owner you may be obligated to turn over all financial details.
If, with the help of a lawyer, you determine that it is worthwhile to bring in a business valuation expert, you may want to consider reaching an agreement with your spouse on the expert prior to having the expert conduct the valuation. This can prevent the battle of experts that can arise if both spouses hire separate experts who provide different appraisals. Your lawyer can help you find an expert who is trusted in these matters.
At The Powell Law Firm, we have more than 70 years of combined experience handling complex divorce cases involving businesses of all sizes. We are happy to answer your questions about business valuation and all related matters.