Business Valuation in Divorce

Privately owned businesses afford their owners freedom and opportunity seldom present in a traditional employment environment, but when business owners decide to divorce, determining the value of the business can be an intricate and convoluted process. If you or your spouse owns a business and you intend to dissolve your marriage, you should consult experienced divorce counsel as soon as possible to help you determine the appropriate method of business valuation in your divorce. The Dallas divorce lawyers of the McClure Law Group will analyze the relevant facts pertaining to the business and your ownership interest, and help you seek an accurate determination of its value. Our Dallas attorneys will aggressively advocate for you to retain any business assets or property that is your separate property, and help you pursue an equitable share of any portion of the business that is community property.

In Texas, like any other property, businesses are typically determined to be community property if they were acquired during a marriage. While in some cases parties will have pre-marital or post-marital agreements clearly defining each spouses’ interest in a business, in cases where no such agreement exists a business obtained during a marriage is most likely community property. Additionally, portions of the value of any business obtained by one spouse prior to the marriage may be community property or may create a claim for reimbursement to the community estate, such as if the non-owner spouse helped to increase the value of the business or if marital assets were used to fund the business. If some or all of a business is deemed community property it is important that the business’s value is properly assessed, so that any community property may be divided in a fair manner.

Most businesses have a fair market value and a book value, and the two values may be drastically different. The fair market value is what a buyer would pay for the business, if the buyer wanted to purchase the business but was not required to, and the owner wanted to sell the business but did not need to. The fair market value considers intangible elements such as the value provided to a business due to goodwill. Conversely, the book value of a business solely considers the financial value, which is determined by calculating the worth of any business assets and property and subtracting any liabilities. The book value of a business is generally lower than the market value.

There are several different accepted methods that are employed to assess a business’s value. Determining which method is most appropriate depends on the individual facts regarding the nature of the business and your ownership interest. Generally speaking, the value of a business can be determined using an income-based approach, an asset-based approach, or a market-based approach. The straight book value of a business is disfavored in the Texas courts, as it generally does not provide the true value of a business. The adjusted book value, however, is a common asset-based calculation used to determine a business’s value. The adjusted book value is calculated by appraising the market value of a business’s tangible assets, then subtracting any liabilities. Income-based approaches determine how much income the business is likely to generate in the future. There are several different methods used to assess the potential future income a business will generate. Lastly, a market-based approach looks at sales of comparable businesses to determine the fair-market value of a business. In some cases, such as when a business is unique and there are no similar businesses being sold, it may be difficult to apply the comparable business method.

You will most likely need an expert business appraiser to accurately conduct a business valuation in divorce. He or she will analyze the financial records of the business, including bank statements, records of monthly and annual expenses, tax returns, and any other information necessary to develop an estimate of the true value of the business. An experienced divorce attorney can help you understand the benefits and disadvantages of each method of valuing a business and explain which method of calculation is most beneficial in your case.

Accurately assessing a business’s value is a complicated and arduous task. If you own a business and are seeking a divorce, it is essential to retain a divorce attorney with experience in divorces involving privately owned businesses to help you obtain a fair determination of the value of your business. The McClure Law Group is proficient in handling divorce cases requiring the valuation of businesses, and our attorneys will diligently pursue a fair share of any community property as well as help you protect any separate property assets. We also assist clients in other cities in Dallas, Collin, Grayson, Tarrant, Denton, and Rockwall Counties. Contact us at 214.692.8200 or via our online form to schedule a consultation.