What You Need to Know About Business Valuation During a Divorce

One of the most strenuous and difficult aspects of any divorce is the division of assets. Florida is an equitable distribution state which means the court reserves the right to distribute assets based on what is fair to each individual as opposed to assuming all property is owned 50/50 by each spouse. The court will generally divide assets equally, but the circumstances of your divorce may lead to an unequal distribution in the name of fairness over equality.

This process becomes much more complicated for divorcees and their attorneys when a business is involved. If one or both spouses own a business then the valuation of that business will have a major impact on the distribution of assets. This is true even when only partial business ownership is present for one or both spouses. The valuation of said business interests will be one of the most important financial aspects of your case.

Business valuations aren’t free

First and foremost, someone is going to have to pay for the valuation. This is often done by a Certified Public Accountant (CPA) or another individual who is certified to appraise the value of businesses.

These people will require a fee in order to carry out the process and those fees can get expensive. You may want to lean on your attorney for relationships they’ve formed with certified appraisers in order to save money and get peace of mind that the appraiser has the experience needed to move the process along efficiently.

There are three types of valuations

The business value will be determined either by an income-based approach, asset-based approach, or market-based approach. Each approach could result in a different number depending on how vital information is calculated.

For an income-based approach, the appraiser will dive into company records and use past profits and cash to project future earnings and the overall value of the ownership stake. For an asset-based approach, the appraiser will examine the assets of the business and the liabilities it holds – resulting in a valuation based on the difference between the two. For a market-based approach, the business will be compared to similar companies and entities that have either recently been sold or recently gone through a valuation to determine their value.

Separate valuations can be present

In Florida, both spouses are permitted to hire appraisers to do their own valuation. This could result in two different numbers. A mediator may be required to hash out any differences in the valuation and to protect the integrity of the case.

This route will be more expensive as two separate appraisers must be paid, so if you can work with your ex to come to an agreement on one single appraiser then this could save you both money in the long run.