Portland ME Divorce Attorney — Valuing a Business in a Divorce
Going through a divorce is never easy, but when you’re left with no other choice, it’s important to persevere through the legal process as thoroughly as possible. When adding a business into the divorce, whether one spouse has a business, both spouses share a family business, or both spouses have separate businesses, you need to be diligent and get accurate valuations of the business(es).
At Schultz Family Law, Portland ME divorce attorney Susan M. Schultz has extensive experience in business valuations for divorce proceedings. Our goal is to provide a defensible estimate of value while comprehensively representing your interests. To speak with attorney Schultz about your case, call Schultz Family Law in Portland ME today.
Business Valuation in a Divorce
In marital estates, a business is often the largest asset. The business interests of some families can be far-reaching, ranging from owning multiple businesses, sharing a family business, or owning separate businesses.
As part of the divorce process, and according to Maine divorce laws, marital property is divided in two ways, called equitable distribution and community property. Generally, courts will either classify property as either ‘marital’ or ‘separate,’ and then, after many other circumstances are also considered, the property is divided.
Marital or Separate Property
Several factors determine whether a business is marital or separate property. Marital property includes the assets and debts a couple acquires during marriage. Property is separate if a spouse owned it before marriage or acquired it during marriage by gift or inheritance.
Keep in mind that even if you owned a business before getting married, it doesn’t mean the courts will automatically rule the business as separate property. There may have been shared funds put into the business, and you need to consider the financial and labor-related contributions of each party.
Business Assets and Debts
In terms of valuing a business, courts generally have wide authority to decide what is equitable (or fair) when dividing property. The valuation of your business will include looking at:
- The business’s assets and debts
- The business’s income
- The method of valuation
- The valuation date
For the business assets and debts, the valuation of assets includes tangible property (infrastructure, inventory, and anything else related to the business that you can touch) and intangible property (patents, accounts receivables, and other assets that are not physical objects). The valuation of debts includes money, goods, and services that the business owes.
Profitability is another consideration when valuing a business for a divorce. The profit of the business is determined by subtracting the business expenses from the business income. Expenses are usually direct costs, such as overhead, utilities, and the costs of producing the goods and/or services. Income is the total amount of cash received from the goods, services, and other business-related activities, such as investments or gains of sale of business assets.
Standard of Value in Divorce Cases
Before valuing a business, it’s important to set up a standard of value. For business valuations in divorce proceedings, there are two ways to value a business: fair market value and fair value.
- Fair market value, according to the IRS, is price a business would sell on the open market. The value includes “the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, and both parties [have] reasonable knowledge of the relevant facts.”
- Fair Value, on the other hand, is open to interpretation, and sometimes dictated by the court with jurisdiction over the case.
When using these two standards on the same business, you may end up with significantly different value estimates.
Call Portland ME Divorce Attorney Susan Schultz Today
Business appraisals are often aggressively challenged in divorce proceedings, especially if one party feels like he/she is getting the short end of the straw. Our goal is to provide a defensible estimate of value, while vigorously defending your interests in Maine family courts.