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Divorce, the fate of your business and valuation issues

On Behalf of | Jan 4, 2021 | Divorce |

If you and your spouse have decided to end your marriage, divorce will take its toll from an emotional point of view no matter how prepared you are.

When the divorce also involves the fate of your family business, the process becomes more complicated and a standard of value takes center stage.

About business valuation

There are generally three options for the disposition of a family business. You can sell the business outright, buy out your spouse’s interest or choose to continue as business owners. If you put the business on the market or if you perform a buyout you will need a valuation to determine the appropriate price.

Common standards

The term standard of value refers to hypothetical conditions for valuing a business, which must be determined before an appraisal can proceed. The generally accepted standards are fair market value and fair value. Normally the court with jurisdiction over a divorce case determines fair value. Fair market value is basically defined as “the price at which the property would change hands between a willing buyer and a willing seller.”

Consequences of divorce

A divorce can result in both financial and emotional issues that can affect the business in terms of productivity, profitability and even employee morale. Determining the appropriate value is critical when the owners are deciding what to do with this important asset. It is not uncommon for the divorcing parties to disagree over the worth of the company. However, having a professional valuation will help to diffuse arguments and reduce the level of stress that accompanies the eventual decision regarding the fate of the business.