Valuation and Continuation of Family-Owned Businesses Upon Divorce
It is vitally important to obtain an accurate business valuation when a couple is divorcing and contemplating continuation of a family-owned business.
November 06, 2012
Families own a vast majority of our nation's companies. Mom and Pop businesses still abound but a dark shadow looms over all of them -- the ever-present threat of divorce.Nationwide surveys report that:
-90 percent of U.S. businesses are family owned
-Family-owned businesses account for 50 percent of our nation's gross national product
-1.2 million companies are operated by husband and wife teams
-Half of all marriages end in divorce
-Baby boomer divorce rates doubled over the past 20 years
Although California reports a slightly lower divorce rate than that of our nation, these are scary statistics for any business owner, regardless of whether it is family-owned. If you own a business and are contemplating or obtaining a divorce, there are a number of issues you need to deal with as soon as possible.
Importance of Obtaining a Business Valuation
During a divorce, it is vitally important to obtain an independent, professional business valuation. Usually, one spouse has a better handle on the financial aspects of the business. If your spouse undervalues the business income and assets, and you rely on those figures during your divorce, you will not get a fair settlement.
Business appraisers, business brokers, valuation attorneys or financial analysts are your best options for a balanced valuation. While a Certified Public Accountant may seem like a good choice, the role of the accountant is to evaluate based on historical information and, often, a CPA is not equipped to accurately assess the future earnings of the business as well as the accumulated goodwill. The earning potential of the business is what you need for proper settlement of your divorce.
Continuing a Business Following Divorce
Divorce does not necessarily mean the end of a family-owned business. If the two of you are able to separate business matters from personal matters, try continuing to run the business together. If that is not possible, your options include splitting the business equally, transferring the business to one of you, selling the business to a third party or closing the business down. For most, dividing the business equally is not an option and closing the doors is tragic when one or both of you spent a lifetime building it up.
No matter which option you and your spouse choose, it will not be easy. Many find the assistance of an experienced attorney quite helpful during a divorce as they divide their property and other assets and establish a valuation of their business.
Article provided by Simon, McKinsey, Miller, Zommick, Sandor & Dundas A Law Corporation
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