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How are business assets valued in a divorce?

A typical point of contention in divorce is the value of a family business. Spouses with varying skill sets often collaborate to build thriving companies and professional firms. Few have prenuptials or partnership agreements that detail a process for valuing the business.

Business assets often top the list of most valuable family assets. They include everything from accounts receivable to goodwill built up over the years. Valuing and then dividing these tangible and intangible assets is much more difficult that dividing the money in a saving account.

Mistakes in the business valuation process can be costly and lead to expensive and drawn out legal battles.

Valuation methods and expert assistance

Several ways exist to value a business. There is book value, which tends to be lower than the actual value. Multiplying before-tax earnings is another way to look at value, but can easily be too high.

Even if a family business issues shares of two million dollars this does not provide a final answer. They are not the same as two million dollars of shares in publicly traded companies, which are easily sold with one phone call. For tax purposes, courts often discount shares in family businesses by up to 35 percent.

A family law attorney who has handled divorces involving sucessful family run companies will be able to spot valuation red flags. Bringing in a forensic accountant or business expert may be necessary in some cases to obtain a "just and right" division.

It is also crucial to characterize the business assets correctly when one spouse owned the business prior to marriage or inherited business assets.

Community property versus separate property

The courts divide community property acquired during the marriage. The Texas presumption is that all property is marital.

Property that one spouse brought to the marriage or inherited individually is classified as separate property and is not subject to division. Strong evidence must exist, however, to support a claim that property is separate to overcome the marital property presumption.

Retain a skilled family law attorney to protect your rights. A lawyer can focus on the details allowing you time to concentrate on yourself and children as you go through a time of transition.

Source: Naples News, "Valuing your closely held business," Irv Blackman, Feb. 28, 2016

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