Whether your divorce is simple or complex, the process is always complicated. It becomes even more so when there is a closely held business involved. Since you and your wife have decided to divorce, an experienced business appraiser will have to value your company.
Knowing what to expect before the process even starts will help to alleviate cost, time, and stress during the divorce proceedings. It may also help you and wife come to a more amicable agreement. An experienced divorce attorney can help guide you through your California divorce. Read further for some of the issues you may need to consider when disputing the value of your business while reaching a divorce agreement.
Standard of value
Before beginning the appraisal process, the valuation professional you hire will have to define a standard of value. This is a hypothetical set of conditions to use as a measurement tool to value your business. The two generally acceptable standards are fair market value and fair value.
Fair market value is the price you could get for your business if you sold it outright to a third party. The fair value measurement is similar to fair market value, but the appraiser will assign a value based on the context of the asset’s use. Usually, the divorce court dictates the fair value. There is typically a large difference between these two estimates. The business appraisers that you hire will have to select the correct type of valuation or the court might dismiss their opinions.
Dividing the business and alimony
If alimony is going to be part of the settlement with your wife, it is important to be aware of the possibility of double dipping. This occurs when the appraiser divides the value of the business based on the income approach. If the appraiser values the business based on the present value of future earnings, the same future earnings that your wife’s attorney may use to argue for an alimony amount, then your wife will receive two monetary awards based on the same income.
If you have a prenuptial or shareholder agreement in place prior to divorce proceedings, this may help you protect your business. Either one can certainly reduce the impact your divorce will have on your company. If you have one of these in place, speak to your attorney about how it will be enforced during divorce proceedings.
Don’t give in to temptation
Often, business owners are tempted to protect their financial interests by hiding assets or committing fraud. A business owner can do this by transferring assets to another family member, understating revenue, or overstating expenses. Do not fall into this trap. The court does not look kindly on business owners that try to do this and you could end up with fewer assets than you would have if you had been transparent.
Divorce is a complicated process. When dealing with a high-asset divorce, it is important to understand your rights and options.