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During a divorce, it can be difficult to put a price tag on a business. This is because different states have different views on how businesses are valued. In case there are a lot of business assets including rental properties, houses, stock options, retirement and pension plans it can be difficult to value your business. While valuing your business, it is important you know how to properly classify the assets as either marital or non marital. During a divorce a business property can either be classified as separate or marital.
A separate asset refers to business property which is owned by one partner before they are married. For example, if Noah started a graphic design business while in college, then married Lydia after college, his business will be classified as a separate business. On the other hand, marital property refers to assets that couples acquired when they got married. For example, if John married Alice then started his graphic design business, it will be considered as a marital asset. In some cases, businesses which are considered separate business may be classified as marital if the proceeds are used to support the welfare of a marriage. For example, if Neil uses the income he gets from his graphic design business to pay the married couple bills, his business may be classified as a marital property. Also, if Neil deposits the income he gets from his graphic design business into a joint bank account he shares with Linda, his business may be categorized as a marital business.
Typically, assets and liabilities of a business are distributed equitably if the business is classified as marital. It is not ideal for you to value your business based on the current dollar prices. You need to take into consideration other factors, like whether the value of your business assets will be ideal for the short and long term security. The valuation officer, who is appointed by a court, will give an estimate to your business future earnings based on information provided. He will then use that information to determine the value of the future earnings in today’s dollar.
In most states, a court will put a value on your business property if it falls under marital assets, which will constitute the market value of your business as at the date of the divorce. A valuation officer, who is mostly a certified public accountant, is the person responsible for evaluating and assigning value to your business. Among other things the valuation officer will evaluate your business financial records, bank accounts, debtor’s and creditor’s account, including inspecting rental properties, physical assets and stock that your business owns. In case of intangible assets like goodwill, the valuation officer will assign value to it.
Once the valuation officer has determined the earning capacity of your business, he will use his knowledge of the business financial returns, economic indicators and characteristics to establish its value today. If your business has any liabilities, it will be subtracted from the total assets to get the value which is owned by the couple(s). It is always important you use an experienced attorney if you have a divorce going on. The attorney will assign you qualified valuation officer, which will reduce the risk of losing money due to poor business valuation.