Tuesday, February 28, 2012

Business Valuation in a Divorce Setting

In a high asset divorce the most valuable asset may be the "family" business.  Valuation of a "family" business is extremely complicated and requires the services of an expert accountant and business evaluator.  Due to my cross experience in representing owners of businesses in Chapter 11 matters as well as my over 20 years as a divorce attorney, I am well qualified to represent clients in this regard.

There are basically two (2) ways to value a business.  The first is the "sticks and bricks" approach, ie: figure out how much you can sell all tangible assets for in a public sale.   Obviously this would be a lowball approach in most divorce cases as a running business is worth more than just the machinery and receivables.  The second way is to have the business appraised, like real estate, by a licensed appraiser.   The appraiser will find comparable sales for similar businesses and create a multiplier to figure the fair market value based on gross revenues.   For example, if the appraiser found that a similar business that grossed $500,000.00 a year sold for $1,000,000.00, the multiplier would be 2.   In that case, a business that grossed $200,000.00 would be worth $400,000.00 under this analysis.

This a simplified explanation of how the appraisal process works.   However, the main consideration is whether the spouse is a "key employee", who, in fact, creates all the business.   If the business would fail if the spouse no longer ran the business, the business may not be worth more than the "sticks and bricks".   For example, a McDonald's franchise might be easily sold without losing its value whereas a well respected doctor's practice would not be as transferable, especially if the doctor does not sign a non-compete clause.

Visit my website at: tomtierneylaw.com

1 comment:

  1. This is nice. I learned something new here. Something not mentioned in schools that is.

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