Business Valuation in an Arizona Divorce
Business Evaluations - How Do They Work?
Business valuations and appraisals in a divorce are necessary when one or both spouses have an ownership interest in a business. Business evaluations and appraisals, however, occur in only a small percentage of divorce cases due to the relatively limited number of business owners compared to the significantly larger number of employed individuals. As a result, it is important to ensure your family law attorney fully understands the principles and practices of business evaluations and appraisals in the context of a divorce.
The establishment of the community property interest of a business in a divorce case is critical to both spouses. Courts will almost never simply hand over the operation of the business to both spouses as equal owners. In some cases, a Court may actually be prohibited from awarding each spouse an equal ownership in the business if, for example, there are other non-related owners of the business whose interests would be affected by forcing that person to operate the business with the non-participating spouse.
Both spouses typically have a vested interest in completing a business evaluation and appraisal to assign a value to the business. Specifically, the spouse who will retain the business after the divorce has an interest in establishing its value because the court will likely order the business interest sold if reasonably reliable evidence of the value of that business is not presented to the court at trial. The non-participating spouse, likewise, has an interest in the business evaluation and appraisal because he or she should expect to receive a fair share of the community property interest in that business.
Understanding the process of determining the value of a business, as well as the numerous factors that will increase or decrease that valuation, is critical to effectively representing a spouse’s financial interests in a divorce. The business evaluation and appraisal process is important because it will also establish the amount of income the owner receives from the business, which will significantly impact the court’s calculation of child support and spousal maintenance.
A spouse may believe he or she knows the value of his or her own company. However, the opinions of a business owner regarding the value of his or her company are typically given very little weight by most judges because of the inherent bias of the business owner to understate the true value of the business in a divorce case.
Frequently, the factors impacting the business evaluation and appraisal and, hence, the value of the company are not readily apparent and may have even been unknown or overlooked by the business owner and even the business evaluator and appraiser. Having a divorce lawyer who understands the intricacies of proper business evaluations and appraisals is, therefore, critical to ensuring a fair and accurate appraisal of the value and income derived from a business.
For example, the determination of the value of a company through a business evaluation and appraisal may, under some circumstances, be influenced more by how the business is expected to perform in the future, as opposed to the historical earnings of the business. This factor alone, if applicable, will significantly increase or lower the appraised value of a business than if the appraiser simply relied solely upon the current financial statements of the business.
Other factors may also significantly affect the value of a business in a business evaluation and appraisal. For example, the condition of the economy as a whole, the condition of the industry in which the company operates, the condition of competitors in the same industry, and the ability of the company to access capital or debt to expand or even maintain operations, just to name a few.
A thorough business evaluation and appraisal is essential to determining the value of a business in a divorce to ensure the fair distribution of the business as a marital asset and to ensure accurate income figures are utilized in the calculation of child support and spousal maintenance.
Visit our divorce and business assets FAQS page for more detailed information on Arizona Business Valuations and Arizona laws related to them.
Contact Our Scottsdale Arizona Business Divorce Attorneys
Contact us today at (480) 305-8300 to schedule your consultation with our Scottsdale Arizona business evaluation attorneys regarding a business valuation for divorce or any other family law matter.