When a divorcing couple owns a business, determining the value for purposes of the marital estate may prove difficult. A family lawyer may suggest that an expert business valuator be brought in to help. However, certain factors need to be taken into consideration before such a decision is made.
Establishing the Minimum Value of the Business
Prior to taking the step of hiring an expert the couple should determine whether they can agree upon a value of the business. Often a family lawyer can work with the couple to negotiate this. One factor that can help them arrive at a figure is by establishing the minimum value. This is calculated by comparing the assets of the company against its liabilities. To arrive at the former (the assets), the couple can hire an appraiser or conduct research of publicly available information, such as that on the Internet. They would then add up the total indebtedness of the company and subtract this from the assets. If the couple cannot agree upon this difference as the business’s value, they should then consider business income.
The Income of the Business
The income of the business may not be reflected in its assets minus liabilities. Often sales fluctuate seasonally; taxes may have recently been paid as well, thus leaving the business to seem less solvent than it really is. Evaluating the income can give the couple a clearer picture of the actual worth. However, in order to conduct such an evaluation properly one of the spouses should be trained in finance. Otherwise, it may be wise to hire a business valuator.
The Business Owner’s Earnings
A final factor in determining whether to hire a valuator is comparing the earnings of the owner to the salary he/she would likely make if employed elsewhere. A family lawyer in Southern California may suggest resources for this research, but a good place to start is the U.S. Department of Labor’s Bureau of Labor Statistics. This site (https://www.bls.gov) provides averages by state. If the business owner makes more than the average salaried position, the business value can be considered to be higher than its minimum value, as described above. If a clear business value cannot be gleaned from this and other sources, the couple should strongly consider hiring an expert valuator.
If You Need Legal Help
Lisa Zonder is a dedicated and compassionate Los Angeles family lawyer who will help you through this difficult time. If you are seeking a divorce or have further questions, call Zonder Family Law to arrange an appointment today at 818-309-7059.