Business Valuation

When a divorce looms, the valuation of a privately held business, whether a small “mom-and-pop” operation or a large international corporation, becomes a critical issue. Regardless of the size or form of the business, an accurate dollar valuation must be assigned to the business so that the asset is taken into account in allocating the equitable division of marital property. If you need help in determining the value of a business, contact Bergen County property division attorney Brian D. Iton for knowledgeable advice.

Business valuation is necessary for any type of business in which at least one of the spouses holds an ownership interest, including closely held corporations, sole proprietorships, partnerships, and professional corporations, such as dental offices or law firms. Business valuation also comes into play when the spouses own a business together, or they are part-owners in a family-run business. Similarly, if one of the spouses has an ownership interest in a small business or professional corporation, or one of the spouses is a partner in a partnership, a valuation should be done.

Broadly stated, the purpose of a business valuation is to answer the following question: “How much would a willing buyer pay, in an arms-length transaction, to purchase the owner’s business interest from a willing seller?” This question is not easily answered. In publicly traded corporations, the valuation of ownership may be determined largely by stock values and other public information. The same is not true of privately held businesses. Even business owners rarely have a clear idea of the value of their ownership interest. For instance, the business owner may have a previous guesstimated valuation, which was used to apply for financing, which does not reflect an accurate present valuation of the business.

Consequently, outside analysis of the business from a third party who has expertise in valuing businesses is necessary. The parties can retain a joint expert or each party can retain their own expert. The expert’s analysis can be focused more on the cash flow generated by the business as opposed to the actual sale value of the business.

Whatever the focus of the valuation courts will not accept a business valuation that is not fully substantiated. While measurables such as asset value, income, and profitability may be objectively determined, an accurate valuation must also look at intangible factors, such as goodwill. For example, a valuation expert may put greater weight upon asset value for an asset-intensive business like a retail store, but not as much for a service business.

There are a number of valuation methods that may be employed, and it is not uncommon for an expert to apply several different methodologies to the same business, giving different weight to each methodology. As business valuations are part art and part science, they are both objective and subjective. If after the valuation is completed the parties cannot settle on a value the court will be called upon to determine whether the value provided by a given expert is supported by adequate hard data as well as by sound rationale.

One of the more common issues that arise in divorce valuation cases is when the owner has co-owners who object to outside review of private company information. In these situations, while the court will not reduce the scope of the valuation, the parties can agree on a methodology which minimizes disruption to the business.

The valuation of a business may be one of the most complex issues involved in the division of assets in a divorce. If your divorce requires business valuation, contact Bergen County property division lawyer Brian D. Iton toll-free at (844) 431-3380, or use our online contact form to set up a free consultation. He proudly represents people who need a divorce lawyer in Hackensack, Newark, Paterson, Jersey City, and surrounding areas throughout Bergen, Essex, Hudson, and Passaic Counties. In each of these situations, business valuation is required, even if doing so will inconvenience or aggravate other business owners who are not involved in the divorce.