How To Ensure a Fair Business Valuation During a Divorce
Asset division in divorce is often a contentious issue, but this can be especially true when you have valuable assets such as a business that you must value. The best way to ensure a fair business valuation during a divorce is to work with an experienced Broomfield business valuation lawyer who can connect you with experts in valuing your particular business.
A Business in Colorado Is Often Considered Marital Property to Divide
If you started your business while you were married, or even grew it significantly during the marriage, the courts may determine it to be marital property. In a divorce, this typically means that you will have to determine its value and figure out how to divide it.
Some of the factors that a judge may take into consideration include:
- When the business was established
- Financial investment into the business
- Physical time or labor contributed
- Liabilities
- The level of financial support the business provides each party
The division of the business may look very different for a small LLC one spouse has as a freelancer compared to a storefront that supports the household. A Broomfield property division attorney from our firm can help ensure your business is divided equitably.
You May Make an Independent Determination
If you and your soon-to-be ex-spouse are amicable in the divorce, and familiar with the day-to-day of the business, you may be able to come to a fair valuation and agreement on your own or through mediation based on factors such as:
- Profit: Determining the value of the business based on its ability to generate income
- Assets: determining the value based on the market value minus the liabilities
- Market: Determine the value based on other comparable businesses
The type of business you own will determine which method is most appropriate. Independent determination may not be appropriate in all settings, especially if there is tension surrounding the division or a significant power imbalance.
A Third-Party Evaluator May Be the Most Fair
An independent assessment may be a more cost-effective and feasible option for some couples. However, for a truly neutral and fair business valuation, it is advisable to consider consulting a third-party valuation expert or forensic accountant who can evaluate the key factors of your business to provide a fair and unbiased value.
Some of the factors they may calculate or consider include more complex valuation models than you may do independently, such as anticipated earning potential based on different multipliers and recent market trends, in addition to considering the earning history and liquidation value. Obtaining an understanding of your business’s value in different circumstances can help you and your spouse make a decision that makes the most sense for you, whether that is offering shares in the company, a percentage of profits, or liquidating and splitting the profits.
Do Not Hesitate to Get a Second Opinion
Did your ex hire a third-party business valuation that just doesn’t seem right? This is not an uncommon occurrence, especially in higher conflict situations or those with higher value businesses. While some couples will decide on a single third-party evaluator and agree to abide by their recommendations, others will hire their own independently and address discrepancies later in mediation or litigate in court.
Our team at Danielsen Westhoff, PC, can connect you with the appropriate professionals. In addition to our experience in divorce and family law matters in Broomfield, we have successfully litigated business valuation disputes in Colorado courts, making us uniquely equipped to support you through the process.