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Matrimonial and Family Law Blog

Friday, September 15, 2017

How Do I Value My Business for Distribution Purposes During a Divorce?

When going through a divorce in New York, you will have to place a value on all your property. Since the value of assets often changes over time, the court will decide the valuation date for your assets. For example, the court may say that you must determine the value of your assets as of the date you or your spouse filed the divorce.

You and your spouse may agree on the value of some of the assets, but the value of a business is often in dispute. The spouse who wants to keep a business may want to fix a low value on it, to minimize the amount she has to pay to “buy out” her spouse’s marital interest in the asset. The other spouse will want as high a value as possible. In these situations, it is best to seek the advice of an experienced family law lawyer.

Important Factors to Consider

Some of the key things to consider in determining the value of your business are:

  • What type of business do you have?
  • What is your involvement in the business?
  • Has your business had an active increase in value or a passive increase in value?

If you or your spouse worked daily in the business and thereby directly contributed to its increase in value, that would be an active increase in value. If, on the other hand, the value of the asset changes based primarily on market conditions rather than the work or involvement of either spouse, that would be a passive increase in value.

If your business is primarily investments, accounts, and other financial vehicles, it will be relatively easy to determine the fair market value as of the date set by the court. Fair market value is the amount that a third party would be willing to pay for the asset if sold on the open market. The third party is a disinterested, unbiased stranger, not connected to either spouse.

Since many businesses are far more complicated than mere stocks and bonds, it is usually necessary to hire a neutral professional to perform a business valuation. It can cost tens of thousands of dollars or more to have a professional business valuation done. The process involves accountants and other financial experts. They have to put a dollar value on tangible things like:

  • Assets: Cash on hand, cash in banks, accounts receivable, and fixed assets
  • Liabilities: Accounts payable, payroll payable, deferred compensation, and accrued vacation

They also have to come up with a dollar value for intangibles like the reputation and goodwill of the company, trade secrets, and client list. These values are attacked most often in business valuations.

Word to the wise: do not intentionally decrease the value of marital property

While it may be tempting to reduce the value of marital property while the divorce is pending, doing so can backfire on you. If either spouse is found to have destroyed, wasted or otherwise lowered the value of any marital property, the judge can take the amount out of that spouse’s share of the marital assets in equitable distribution.

The law is constantly changing. It is important to talk with a New York divorce lawyer in your area. Schedule a consult with one of our New York divorce lawyers to protect yourself and your future.

 


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