Family Business and Divorce

What happens to a Family business during a divorce? There are typically two occurrences. Either both parties have located a buyer interested in purchasing the entire business or one party buys out the other.

If the former is the case then the parties will typically agree on a valuation of the business and attempt to sell. In the latter situation both parties will tend to disagree on the value of the business. The spouse leaving the business will tend to think of the value “in the terms of the future prospects possessed by the business”. The spouse keeping a controlling interest in the business will tend to think of “value based on the worst case business scenario for the future.”

Throughout this process there tends to be a high level of emotion. This along with the financial goals of the parties’ can “cloud” the valuation of the business. However, it is important to note that the valuation standard is “fair market value.” Professional organizations (American Institute of CPAs, the American Society of Appraisers, the Canadian Institute of Business Appraisers, the Institute of Business Appraisers, and the National Association of Certified Valuation Analysts) have defined the term “fair market value” as follows:

The price, expressed in terms of cash equivalents, at which a property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, when neither is under compulsion to buy nor to sell, and when both have reasonable knowledge of the relevant facts.

When determining the “fair market value” of a Family business appraisers look at several factors. These include fixed assets, accounts receivable, work in progress, goodwill, and liabilities. These components and other variables can get very complex.

When contemplating divorce and a Family business is involved it is recommended to not only obtain the services of an attorney that knows the legal landscape of divorce, but also the financial realities. Louis Simonetti, Jr’s business background and graduation from the Wharton School of Business gives him insight that can be instrumental to obtaining the most lucrative resolution for his clients. So if you are contemplating divorce and a Family Business is at issue seek out the advice of the experienced attorneys at Simonetti & Associates.

Reference: Rickard L. Borg, Esq., Evaluating a Business or Professional Practice in Divorce (available at http://www.divorcesource.com/ds/california/evaluating-a-business-or-professional-practice-in-divorce-4286.shtml)

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