Many times, a family business is a focal point in the property division phase of a divorce. The task of determining how to divide it is not an easy job, and some sticky issues may need resolving before reaching an equitable division.
Determining standard of value
If you and your spouse own a business, you will need an appraisal to place a value on this important asset. A value will be necessary whether one of you buys the other out or you decide to put the business on the market. Before the appraiser can proceed, he or she must determine what standard of value to use.
There are two common options: fair market value and fair value. The former is the price a willing buyer would pay a willing seller when neither is under any compulsion to enter into such a deal. The latter option depends on the type of business and its use. The court that has jurisdiction over the divorce case can order fair value appraisal.
Avoiding double dipping
The appraiser may use the income approach in valuing the business: determining worth by using the current value of expected future income. Attorneys will be on the lookout for double dipping. This issue would occur in the event that one spouse receives both a share of the equitable distribution of assets and alimony based on the expected future income of the business.
Because the different standards of value can result in diverse value estimates, a dispute may arise between the parties who are in the process of divorce. The difference of opinion may be difficult to resolve unless the matter goes before a court. Even though the marriage is ending, either party may want to give way when accepting a value for the business to which they have a financial and emotional attachment.
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