When a husband or wife, or both, own a business during marriage, they will need to determine the marital value of same in order to divide same if they divorce. Like other assets, a business can be included in the marital estate for division, or Aequitable distribution,@ upon divorce. Also like other assets, the business must be assigned a value in order to be divided. The parties may be able to stipulate to a value, especially of a small business, without formal appraisal. However, larger more complex businesses usually require professional valuation due to the stakes.

Finder a Valuator:

There are professional business valuation service companies, which employ financial experts to perform business valuations with Virginia equitable distribution proceedings in mind. Chances are, your divorce attorney has experience working with business valuators and can recommend and obtain the services of a reputable one. Key is that the valuator is comfortable with rendering expert opinion in Court

The Role of a Valuator:

The role of the expert valuator is to provide ascertain a credible opinion of value which may be offered as support for the position of the client in trial. That said, business valuation is highly complex and may turn significantly based on approach and data employed. Different valuators are likely to come up with different values. Often both parties to a divorce will present expert valuation to the court, as a lower value may be advantageous to one party, i.e., the party keeping the business, while a higher value may be preferred by the other, i.e., that party taking his or her present share of the business=s value and then moving on.

The Valuation Process:

Virginia statute does not define the standard of value for businesses for divorce (equitable distribution) purposes. Virginia case law guides financial experts to determine the business=s Aintrinsic value,@ that is, the value of an asset or business in the hands of a specific owner without regard to a subsequent sale unless the business is to be sold. To elaborate, intrinsic value is a subjective idea that looks to the worth of the asset to the divorcing parties specifically. From there, the valuator must research and analyze the business to determine the best methodology to arrive at the intrinsic value.

Valuators may look to both internal and external factors that influence the value of the business. Internal factors could include the business=s success of operations and financial position. External factors could include the status of the industry in which the business operates and the position of the business in that industry. Valuators also generally consider three approaches to determining business value. These are the Aunderlying asset methods,@  Aincome/earnings methods,@ and the Amarket methods.@

Underlying Assets Methods– These methods consider book value (the value of a security or asset as entered in a company’s books), adjusted book value (a measure of a company’s valuation after liabilities and assets are adjusted to reflect true fair market value), and liquidation value (the total worth of a company’s physical assets if it were to go out of business). These methods are often chosen when a company=s value hinges on the value of its tangible assets. An example of such a business is a holding company, which buys and possesses the shares of other companies, as there is little or no value added to business products or services from labor or intangible assets. The underlying asset method may also be applied when a business has no established earnings history or a volatile one. Further, it may be applied when the business has a questionable ability to continue as a Agoing concern@ (an accounting assumption that a business will be able to continue operating for a period of time that is sufficient to carry out its commitments, obligations, and objectives)

Earnings Methods- these methods determine value by estimating future income or cash flow and then deriving the present value of the expected future benefits from the earnings of such income or cash flow under the assumption that the business is a Agoing concern@ (an accounting assumption that a business will be able to continue operating for a period of time that is sufficient to carry out its commitments, obligations, and objectives). The critical component of the business=s value is assumed to be its earnings. The business=s assets (tangible and intangible) are considered indistinguishable parts of the business and are not valued separately.

Market Methods– The market approach, as the name implies, relies on signs from the real market place to determine what a business is worth. There needs to be data available on sales of businesses comparable to the business being valuated in order to use this method.

At any rate, when a business is a significant asset in divorce, an accurate valuation is crucial.  Start by seeking the advice of an experienced attorney.