In any divorce, the division of assets is a key issue. When it comes to family businesses, that division can be especially complicated. How is the business valued? Who gets what share? These are questions that need to be answered before any settlement can be reached. In this blog post, we’ll take a look at how family businesses are valued in North Carolina divorces and some of the factors that go into that valuation.
Determining the business value
There are a number of different factors that go into valuing a business, which is why the process is typically quite complex.
In order to ensure that both parties have a fair chance at coming to an accurate evaluation, it is common for each side to hire their own independent expert – usually a Certified Business Appraiser or Certified Public Accountant.
These professionals will be responsible for conducting their own analysis and later testifying as to their findings.
It is not uncommon for the parties to disagree on the business’s value, in which case it would be up to the courts to make a final determination. However, due to the wide discretion afforded to them in such cases, it can be difficult to predict what the outcome will be.
Business Valuations in a NC Divorce
There are a variety of standards of value for businesses, the most commonly used being the fair market value.
The fair market value is determined by looking at what a willing buyer would pay for the business and what a willing seller would accept, assuming both parties have reasonable knowledge of the relevant facts and neither party is under any compulsion to sell.
Other standards of value include investment value, intrinsic or fundamental value, liquidation value, and book value.
The appropriate standard of value depends on the specific circumstances of the business being valued. In general, though, the fair market value is the most widely accepted and used standard in North Carolina divorces.
Disagreements on business valuation are common
It’s important to keep in mind that the value of a business can be highly contested in divorce proceedings. The party who is keeping the business will typically argue that the value is low, while the party being “bought out” will contend that the value is much higher.
If the business or business interest existed prior to the marriage, the party keeping the business will likely argue that the business has not gained much value from the date of marriage to the date of separation.
The party being bought out, on the other hand, will maintain that the bulk of the value of the business was gained during the marriage as a direct result of their combined efforts.
Ultimately, it’s important to have a clear understanding of the value of a business before entering into divorce proceedings.
Selecting the date
One of the first steps in valuing a business for divorce purposes is to select a valuation date. This date represents the point in time at which the business assets will be valued.
In some cases, the parties involved in the divorce proceedings will agree on a valuation date. However, if the parties cannot come to an agreement, the judge presiding over the case will choose a valuation date that he or she believes is fair to both sides.
The valuation date can have a significant impact on the value of the business, as it may fluctuate greatly over time. For this reason, it is important that the parties involved in a divorce proceeding are aware of the potential implications of choosing a particular valuation date.
The date of separation is often used as the valuation date for businesses in divorce proceedings. However, this may not always be the most equitable choice.
For instance, if the business interest existed prior to the marriage, the business should be valued as of the date of marriage and as of the date of separation and any appreciation during that period should be considered marital.
The date of the filing of divorce is also not always the most equitable either.
If the business was worth $1 million on the date of separation and only worth $500,000 on the date of the divorce filing due to the active depreciation of the business by the controlling spouse, the court should consider the value on the date of separation.
In order to ensure that businesses are fairly valued in divorce proceedings, it is important to have legal representation with experience representing business owners.
Dividing a business in divorce can get messy
Deciding how to divide a business in a divorce can be a difficult and complicated process. There are many factors to consider, such as the value of the business, the role that each spouse played in its success, and the prospects for its future growth.
Working with a law firm that has a history of representing business owners and dividing business assets can provide clarity. Experienced lawyers will be able to carefully evaluate all of the factors involved and craft a solution that is fair and equitable for both parties.
If you’re a business owner in North Carolina who is considering divorce, schedule a consultation with Gantt Family law today. We can help you understand your options and protect your interests.