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Address business valuation issues correctly during a divorce

On Behalf of | Dec 1, 2021 | Property Distribution

Dealing with a divorce in New Jersey can be a challenging time. It can become even more complex if you’re in this position and you have a closely held business. Examining common business valuation issues in a divorce can be essential to help ensure that the process goes as smoothly as possible for you.

Define a standard of value

When conducting a business valuation during a divorce case, fair market value and fair value should be considered. Fair market value comes into play when a willing buyer and seller agree on a specific price and discounts are applied, such as the discount for lack of marketability and the discount for lack of control.

Examining case law and statutes in a jurisdiction

If you’re getting divorced, a professional who is trying to determine the value of your business will need to refer to case law and statutes in your jurisdiction. Distinguishing between use of fair market value, fair value or just value in a specific jurisdiction must be completed.

Double dipping

The concept of double dipping must also be addressed. This term refers to a spouse who is awarded twice on any income generated by a business. This extra payoff can occur when calculating income available for support and the equitable distribution of assets.

A commonly used method to value a business in a divorce case is the income approach. Using it allows an appraiser to determine the business’s worth.

Taking preventative measures

Taking preventative measures can help you avoid being blind-sided by divorce and the resulting complications. Make sure you understand the issues and create provisions that can help establish mechanisms for valuing your interest and your spouse’s interest in the company.

You want to be able to protect your financial future and retain as much ownership in your company as possible. Knowing all you can about the valuation process should help make it more straightforward if you’re getting a divorce with a business involved.