How Business Valuations Work
In cases of divorce, business valuations are essentially appraisals that must be completed by both parties involved and are necessary to ensure a fair allocation of business property. It is possible for a business to hold value to each of the parties beyond that of the hard assets themselves, which is why an assessment must be made in order to assign an overall value to the business before going to court. Once this value is decided upon, the court will then base its ruling regarding the final division of assets off of this number.
The Importance of the Appraisal Process
It is important to remember that courts very rarely decide on equally shared ownership of the business, meaning it is in the best interest of both parties to provide a truthful and accurate appraisal. If reliable evidence concerning the value of the business is not provided, the court can actually decide to order the business to be sold. Since the most common scenario is one party retaining ownership by buying the other party out, a ruling by the court to sell would result in the loss of the business for one person, and the loss of all money from a buyout for the other. As such, both parties often have a vested interest in telling the truth.
In addition to determining the business’ true value, the valuation and appraisal process also plays an integral role in the following ways:
- Establishes amount of income the owners generate from the shared business: This greatly affects the Court’s calculation of other financial matters, such as spousal maintenance and child support in Arizona.
- Provides judges with a trustworthy number: Most judges have very little faith in the inherently biased word of an interested party, since they often intentionally underestimate the business’ value in order to avoid paying too much.
The Bottom Line
The business valuation process is something that can be tricky for even a professional business evaluator, as factors such as anticipated earnings, the economy, the nature of the business’ industry, competitors in the industry and more can make it difficult to determine true business value. That is why it’s essential to retain the services of a trusted divorce attorney who can help obtain a precise business valuation, and give you the best chance at retaining your fair share.
With over 30 years of experience in family law, Simon Law Group’s family law group in Phoenix, AZ can streamline and clarify each process—including matters of business valuation. For 24-hour professional legal assistance, or to set up a free consultation with a Simon Law Group family attorney in Phoenix, please call 480-745-2450 or Contact Our Firm.