What is a Business Valuation and Why Is This Necessary?

By: Melissa L. Exline, Esq.

First, if there is a business involved in the divorce, it is important to strongly consider hiring an expert.  A business valuation is nothing more than getting someone with the right background to say what the business is worth and why.  Generally, it is distilled down to a report that can be introduced into evidence in a case. A lawyer cannot guess and without knowledge, everyone is shooting in the dark wondering what that business is worth.  In community property states like Nevada, the business is usually a community asset subject to equal division at divorce.  Often, one spouse is going to keep the business and the other is not – but that other spouse that is walking away is entitled to know what the business is worth to address what is fair for that spouse’s interest.  Even if only one spouse “worked” the business, if it was started during the marriage, the business is likely community property.

If you are facing a divorce and a business is involved, expect to hear from your attorney that a forensic accountant or other expert is required to address the value.  It is not uncommon for the spouse that is on the “outside” of the business to be extremely concerned that the other spouse is undervaluing the business, hording assets or cash in the business’ name improperly, or running lots of personal expenses through the company, all of which can impact cash flow and valuation.

Over the years, I have been told “the business has no value – its just me.”  But every business has a value.  If you and your spouse have been living off the income, in whole or in part, you can expect to have the business valued in a divorce. If the parties do not agree on the value, then there is really no choice but to have someone provide an opinion on this. And, no, your regular bookkeeper or accountant cannot set the value.  This is a completely different analysis than what you look at in court during divorce.

I know, hiring an expert is frustrating because that is just one more bill.  But it is not the end of the world.  Paying an expert can be handled efficiently.  For example, if the business is not extremely complicated and cost is a big concern, then both sides can agree to use one neutral expert to give everyone an idea of what the business is worth.  This cuts down on the cost and it diminishes the suspicious that the other side has a hired gun to come up with an inflated or deflated value in a self-serving way.  That alone can help settle a case.  Instead, both sides are paying the same person to give a fair number.  The parties can still argue over whether that number is too high or too low, and if that happens, then costs could increase.  But, many times, by putting some light on the business value I creates a starting point for negotiations to proceed.

Whether you have a business that is modest, like a small lawn service or solo-contractor, to a more complicated business with interests in copyrights, trademarks or patents – you should be ready for the lawyer to recommend a valuation in one form or another.  At Surratt Law Practice P.C., we work closely with experienced forensic accountants to address business valuations on a regular basis.  If you need help in this area, call us to discuss strategies right away.

Kimberly Surratt served for eight years on the executive council and has been the vice chair and then chair of the State Bar of Nevada Family Law Section. In addition, she is the President-Elect of the Nevada Justice Association and the chair of the domestic lobbying committee. She has lobbied with the Nevada Justice Association since 2004.

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