When a couple decides to get a divorce, there are a wide range of financial factors that will come into play while dividing marital assets. Equitable distribution refers to the division of assets and liabilities during the divorce process. All of these financial figures will be based on the fair market value at the time of separation. However, if one of the spouses owns a business, the fair market value can get a bit more complicated. As such, business valuation in divorce often produces a wide array of emotions. From disappointment to sticker shock, the reactions typically vary dependent upon the spouse’s perspective.
Generally, the business owning spouse hopes for a lower business value in order to be granted the business in addition to other marital assets. The other spouse, however, hopes for a higher business value so that they may be given a larger chunk of the other assets and, in some cases, those assets in addition to a buyout for the business’s value exceeding the value of all additional received assets. Business valuations are seldom simple and straightforward and therefore require the expertise of a CPA/ABV (Accredited in Business Valuation).
In Florida, it must be determined if the business is classified as separate or marital property. Once this is decided, the valuation process can begin. Business valuation in divorce means placing a monetary value on a business. Broadly, there are three main approaches to valuing a business:
- Asset Approach: the company’s value is based on underlying assets net of liabilities
- Market Approach: the company’s value is based on comparable companies that were sold in comparable markets
- Income Approach: the company’s value is based on current and past economic data used to forecast future financial benefits and then converting those forecasted numbers to create a current value
Determining which of the above approaches to use is a process that varies from expert to expert. However, it is quite common to utilize, or at least take into account, more than one of the approaches. The valuation expert must also consider the assignment of value to intangible aspects of the company. For instance, goodwill is a determinant in the value of a business. This means taking into account the company’s brand and reputation as it relates to its overall value.
The courts will lean heavily on the valuation expert’s findings to come to a resolution. Ultimately, however, it is on the courts to decide if the appraisal is accurate and just. The process of valuing a business in Florida is multifaceted. Since so much of the business value is based upon professional discretion, choosing the right professional is critical when establishing the fair market value of a business. As such, it is imperative to lean on a CPA/ABV with verifiable experience and expertise in martial dissolution and business valuation.
At Ellrich, Neal, Smith & Stohlman, P.A., we are committed to providing high-quality financial, tax, and forensic accounting services. For more information on how business valuation will impact your divorce, contact our Miami or Palm Beach Gardens offices today!