High-asset divorce cases can be very complicated for a variety of reasons. Many high-asset couples can have multiple financial and real estate assets that themselves can be complex to discover and properly valuate. There can be an assortment of assets, including cash savings, stocks, bonds, real estate, life insurance policies, retirement funds, annuities, inheritances, collectibles, and even crypto currency and physical gold and silver.
Many high-asset divorce cases also include businesses. Even small businesses can add a layer of complexity that can be a challenge.
Conducting an accurate, viable, and reasonable business valuation can take a team, including an attorney, forensic accountant/auditor, and Certified Public Accountant (CPA), along with the assistance of the company’s support and accounting staff. It can require access to the company’s tax records, partnership or corporate documents, payroll records, client contracts, key employee contracts, rental agreements, loans, mortgages, inventory, and other debts and assets. Adding to the complexity are some subjective aspects of a company’s valuation.
A business valuation is an issue so critical and complex that we are devoting our next two blogs to this important aspect of a high-asset divorce.
Spouses are often surprised by the value of a company their spouse may have an interest in. Even if the spouse is the sole owner and employee, valuations and a spouse’s minority interests can be higher than anticipated.
Let’s take a look at some of the methods frequently used in valuating a business in a high-asset divorce. There are three popular approaches.
An Income Approaches
This is probably the most popular approach potential investors use when valuing a business. It focuses on the income and cash flow of a business now and in the future to value the business, based on a multiple of its profits. The multiple may change somewhat based on the type of business, length of time the company has been in business, and market conditions.
A Market Value Approach
This is perhaps one of the more accurate ways to value a business, but it can be a challenging approach. Much like real estate, it uses comparable sales to value a business. It involves finding similar businesses of similar sizes that have recently been sold in the region. In some business categories, comparables can be difficult to locate, making this approach more challenging.
An Asset-Based Approach
If a business is relatively new and underdeveloped, struggling to show profits, or has valuable assets, this is often an option. It takes almost a worst-case scenario approach, saying at the very least the company is worth at least as much as its assets, minus any debts, of course. Companies that have large inventories, expensive manufacturing equipment, vehicles, real estate, or who may even hold a valuable patent or long-term contract may resort to this approach for valuation in a high asset divorce.
In our next blog, we will address other factors involved in valuing a business in a high-value divorce, its impact on the parties, and what else you should be aware of if a business is involved in your divorce.
If you have questions about a prenup agreement or a postnup agreement or require legal assistance in other areas of Family Law such as high asset divorce you may always contact Damien McKinney of The McKinney Law Group to discuss your case further. He can be reached by phone at 813-428-3400 or by e-mail at email@example.com.
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