How do you value a business for divorce?
Reaching an agreement on the value of the business can be a real obstacle in finalising a property settlement.
While an asset such as a house can be valued fairly easily using a market appraisal, valuing a business is inherently more difficult. Despite its inherent difficulty, agreeing a value for the business is a critical step if a separating couple are to avoid a Court proceeding.
It is usually necessary to engage a business valuation expert to determine the true value of the business. An independent business valuation can bring clarity to the property settlement proceeding. Most professionals who provide these services are accredited in Business Valuation (ABV), and/or are Certified Valuation Analysts (CVA), Accredited Senior Appraisers (ASA), or Certified Business Appraisers (CBA).
The independent valuer must provide an accurate estimation of the business value, without any bias or partiality. The value of a business is based on a wide range of factors, some quite complex and dependent on a thorough assessment of the business’s financial records. A business is valued at the date of property settlement or Court hearing, not the date when the couple separated.
The independent valuation is usually different from a prospective sale price on the open market. Rather, the valuation also considers the benefits that the owner would receive if they continue to maintain their interest or role in the business. For instance, if one spouse will be able to stay on in the role of CEO, then this is an additional benefit that must be considered in the valuation of a business.