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Divorce, your family business and the matter of valuation

When a family business becomes involved in a couple’s decision to end their marriage, the company takes center stage in the property division process.

Basically, there are three options for consideration in working out the business's fate. Two of them require performing a valuation.

Standard of value

You and your spouse may disagree over the worth of your family business, but you can hire a professional appraiser to perform a valuation. First, however, he or she must define a standard of value, a range of hypothetical conditions through which valuation can take place. In divorce proceedings, there are usually two standards: fair value and fair market value.

The difference

Fair market value means “the price at which the property would change hands between a willing buyer and a willing seller.” To obtain a value using this standard, an appraiser often adds discounts such as a discount for lack of control or for lack of marketability. The standard of fair value depends on the use of the business and generally does not include any form of discount. The court having jurisdiction over your divorce case weighs in on fair value.

Options to consider

You have three basic options to consider in determining the fate of your business. You and your spouse could put the company on the market and split the profits once it sells. Another option is for one of you to buy out the other party’s business share. Both options require a valuation to arrive at an appropriate selling price. The third option is to continue on as partners. If you anticipate an amicable divorce and believe you and your spouse can go on working together, this may be the best solution. In this case, you would save yourselves the expense of requiring a valuation.

Seeking help

Remember that you will not go through the divorce alone. Rely on legal support and guidance as you approach this important event in your life, and carefully weigh your options when it comes to the fate of your family business.

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