Divorce cases can be more complex when a couple owns a privately held business. In order for the court to determine an equitable distribution of the marital assets, the company's value must be known. This requires an independent appraiser to complete a business valuation on the company.
Hypothetical scenarios that require a business appraisal:
Both spouses wish to quickly divide their marital assets for a divorce. They are involved in a mediated process and agree to hire a single business appraiser to determine the fair market value of the company. This will allow the divorce to proceed more quickly with lower professional fees.
In a contentious divorce, one spouse is integral to the business and claims that the company has very little value. The other spouse is concerned that he/she is being treated unfairly, as the company has provided significant financial benefits to the couple in the past. A business valuation is necessary to ensure that the company's value is properly determined.
A spouse that is active in the business has asked his accountant to perform a business appraisal. The other spouse is concerned that the accountant is neither qualified to do so, nor able to provide an unbiased opinion due his longstanding relationship with the active owner. A business valuation from a independent, qualified appraiser would allow both spouses to feel comfortable that the company will be valued fairly.
Special considerations for divorce appraisals:
In most cases, a business is not divided between equally between spouses. Instead, one spouse keeps the company while the other receives different assets of similar value.
It is important to know the correct date of the valuation, as it varies by state, by jurisdiction and by specific circumstances of the marital dissolution. The valuation date is generally one of the following: date of marriage, date of separation, date of filing or the date of trial.
The applicable 'standard of value' for a divorce is less clear than for any other valuation purpose. The standard of value is usually 'fair market value', however, other standards such as 'investment value', 'instrinsic value' or 'fair value' may apply. These defined terms can also range from a very strict interpretation to a more broadly based view.
As certified appraisers, we are professionally and legally bound to remain independent when performing a business valuation, regardless of which spouse hires us. As such, both spouses may choose to hire a single appraiser to determine the company's value. But unfortunately, not all divorces can be easily mediated and, in many cases, it may be necessary for each party to hire their own appraiser.
It is important to hire a business appraiser that has served as an expert witness in court, in addition to having the proper credentials. Allied's Valuations Director, Kelly Skarda, has testified in numerous court cases to defend our business valuation reports. Kelly is an Accredited Senior Appraiser (ASA) through the American Society of Appraisers as well as a Certified Business Appraiser (CBA) through the Institute of Business Appraisers. To view Kelly's complete bio and curriculum vitae click here.
For more information on our litigation support and expert witness services click here.
Documents required to complete an appraisal for divorce cases:
Profit and loss and balance sheet statements for the last three to five years
Interim profit and loss and balance sheet statements for the current year
Federal income tax returns for the last three to five years
Copies of any forecasts or projections
Operating agreement or any other shareholder agreements
