Marital Dissolution Cases
February 2021
When a married couple owns a business and they decide to get a divorce a determination of the value of the business is normally necessary in order to produce an equitable division of marital property. There are generally three options in the division of a business in a marital dissolution: 1) the business is awarded to one party, or essentially a purchase of the other party’s interest in the business; 2) the business is sold and the parties split the sale proceeds; or 3) the parties continue to co-own the business. In the first two options, it is necessary to determine the value of the business.
Determining the value of a business is not an easy task and, thus, often the parties will hire business appraisers. The business appraisers will generate valuation opinions that conform with industry standards, as well as the standards of the accreditation associations to which they belong. In addition, the business appraisers need to have their opinions conform to state statutes and case law precedents. These statutes and case law precedents vary widely from state to state. The business valuations will consider the use of three approaches to value, namely the: 1) net asset approach; 2) income approach; and 3) market approach. One or more of these approaches will be utilized, depending on the facts and circumstances of each individual case. The net asset approach bases value on the value of the company’s assets less liabilities. The income approach capitalizes past or future income into value. The market approach utilizes the sale prices of companies that are similar to the subject company in determining the value of the business. Normally the “As of” valuation date in marital dissolution cases is the date of the trial, but this varies widely from state to state. The standard of value for valuations in marital dissolution cases is normally “fair market value”, but this varies widely from state to state, as well. The emphasis is normally on fairness in determining the value of the business in marital dissolution cases. In divorce cases, courts tend to prefer approaches and methodologies that are based on historical data, as opposed to projected performance as typically future earnings are not considered marital property.
If a business owner is getting a divorce, he or she should hire a business appraiser that is well versed in valuing businesses for the purpose of marital dissolutions in the state of the divorce. The business appraiser should also have substantial experience in valuing businesses in the same industry as the subject and of similar size as the subject.
Relevant Court Cases
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Speece v. Speece,
Court of Appeals Eleventh Appellate District
Geauga County Ohio, 2021 Ohio 170,
dated January 4, 2021
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Jones v. Jones,
Court of Appeals of the State of Washington
Division Three, No. 36605-7-III,
dated January 19, 2021
Recent Business Valuation Articles
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“Valuation measures: from simple
ratios to stock market predictors,”
by B. Sorge, D.M. Montagna and A. Amendola,
dated December 2020
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“Valuation Beta: Addressing Inadequacies
of Book to Price with Intrinsic Value, Stewardship
and Leverage,”
by Rafael Resendes, Daniel J. Obrycki, Derek Bergen, CFA and John Holt, CFA,
dated December 2020
Recent Engagements
- Valuation of member interests of a group of
medical care providers on a controlling interest basis for
capital contribution purposes.
- Valuation of the common stock of an automobile dealership
on a minority interest basis for gift tax reporting purposes.
- Valuation of the common stock of a specialty food manufacturer
on a minority interest basis for estate tax reporting
purposes.
- Consulting regarding 100% of the common stock of a
professional service firm for planning purposes.
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