When to Hire an Appraiser During a Divorce

Getting a divorce is inherently traumatic, for obvious reasons. Divorce settlements involving business owners can be especially acrimonious. However, you aren’t alone in your struggle to end a destructive relationship. Settling a divorce with a division of assets that satisfies both parties isn’t impossible, but it’s easier to get there with a clear-cut value figure of the company in question. It’s best practice to bring in a third-party valuation firm/appraiser to assess value, in both contested and collaborative scenarios, during the divorce process in order to equitably divide assets. Here’s why:

An Objective Perspective During Divorce

A divorce between business owners does not have to end in disarray and an outcome that neither party is happy with, a happy ending is definitely possible, but it’s important to retain a sense of impartiality, which can be hard in an emotionally-charged situation. Lean on the assistance of an appraisal or valuation firm, and you’ll benefit from some much-needed objectivity. Though each business owner has a subjective viewpoint, there is no need for self-interest or bias to drag out the divorce process.

A fair business valuation is necessary to determine how the company’s assets will be distributed. The challenge lies in resolving disagreements pertaining to the value of the enterprise. Enter Quantive. Our experienced valuation team provides in-depth analysis and valuations for businesses of all types and sizes. Lean on our unbiased and thorough valuation process to quantify the actual value of your enterprise, laying the groundwork for an amicable split that you and the other business owner(s) agree is fair, even in contested scenarios.

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The Standard of Value

Business valuation specialists define the standard of value before moving forward with the appraisal. The standard of value is best defined as the context in which the enterprise’s value is determined. In terms of business divorces, the standard of value differs by the state due to court rulings and is dependent on any language detailing the standard of value within the operating or shareholders’ agreements. Most commonly, fair value and fair market value are the standards used for divorce settlements, but some states may call for other standards such as intrinsic value to be used.

Fair value is defined in accordance with the context. Though fair value has parallels to fair market value, there is no consideration for minority discounts. Fair value is ultimately determined by the court that presides over the case. Alternatively, fair market value is defined as the price of the business at the time it changes ownership between the buyer and seller when the buyer is not under pressure to purchase, and the seller is not pressured to sell.

As long as both the buyer and seller have a sufficient understanding of all facts considered to be relevant, fair market value can be determined. Valuation analysts factor in discounts in the context of fair market value, such as the discount for lack of marketability and the discount for lack of control to quantify minority interests.

The standards noted above have the potential to yield different valuations. What matters most is that the correct standard of value is selected for the business divorce in question. When the optimal standard of value is applied on your behalf, you’re increasing the odds that your business divorce will go through without unnecessary scrutiny from authorities, your former partner, or opposing counsel. This is especially important in contested scenarios, where the final valuation report is gone over with a fine-tooth comb by all parties.

The Matter of Jurisdiction

Valuation specialists and lawyers alike stress the importance of jurisdiction in the context of business divorces. In combination with case law, the local statutes ultimately determine the value standard to the divorce case. Certain jurisdictions rely on fair market value. Other jurisdictions favor fair value or regular value. In some situations, there is no guidance regarding which standard of value is applied to the divorce.

The Issue of Double Dipping

In the context of business divorces, double-dipping refers to a situation in which one of the spouses is compensated twice through income resulting from their business activities. The first instance of compensation takes the form of the equitable distribution of assets. The second instance of compensation occurs when determining the income provided from the other spouse for financial support after separation to maintain quality of life. The valuation of the business ultimately shapes the basis of the argument against multiple forms of compensation.

The income approach is the most widely used business valuation method. This approach involves the appraiser determining the worth of the business following income value anticipated in the years ahead. The appraiser determines this figure with the capitalization of the business’s income in a specific period using an anticipated rate of return or through estimation of forecasted income across the year. A discount rate is then applied to quantify the business’s earnings across posterity.

The argument can be made that relying on the business’s future stream of income to calculate its worth in the context of property division amidst a business divorce and subsequently requiring the spouse to pay child support or alimony from the same pool of money across posterity is unjust as it is a form of double-dipping.

What matters most is that your business is valued at its actual worth by accredited valuation analysts (like the ones here at Quantive.) Using an experienced firm to perform a business valuation allows you to focus on all the other issues that arise during a divorce. Ideally, at the end of the valuation process, you’ll be able to transition to the next chapter of your life without any regrets concerning whether or not the value of your business was fairly concluded before legal separation.

Quantive Embraces the Challenge of Business Divorce Valuations

Though you and your partner might have different ideas of what the business is worth, Quantive’s objectivity will bring much-needed clarity to the situation. Our team will calculate the fair value of the enterprise accounting for both tangible and intangible assets. If necessary, we will also compare the value of the business to similar businesses that have been sold.

The divorce process becomes that much more complicated when a business is involved. Our business valuation experts are here to simplify the matter, helping you make as seamless a transition as possible to the next chapter of your life and professional career.

Dan is the Founder of Quantive and Value Scout. He has two decades of experience in leading M&A transactions. Additionally oversees Quantive's valuation practice and has performed thousands of business valuations.

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