Whether one spouse inherited a business or a couple decided to start a company together, business valuation may be the most pressing challenge during divorce proceedings. Spouses often have a lot of issues to address when there is a company included in their pool of marital assets.
In order to appropriately divide marital resources, couples first have to establish what they are worth. Business valuation often requires outside professional support, as it is a very complex process. There are many different ways to establish the value of a business that consider everything from the future earning potential of the company to the market prospects for the industry as a whole.
One of the considerations that can have a major impact on the final value established is when someone performs the valuation process is timing. Is it better to complete the business valuation during or after the divorce?
There are limitations to either approach
One never knows how the market might change in the future, which is one of the reasons that business valuation can be a subjective process. Those who believe that economic factors when they file for divorce might artificially decrease the value of a business could try to fight against that reduction in value by asking to delay the valuation until later in the divorce process.
However, during that time, machinery and other equipment will depreciate in value to some degree, and there is never any certainty about what will happen to the economy. There’s also the possibility that a spouse involved in business management might intentionally mismanage the company so that it appears to be worth less than it should be worth during a later valuation.
There are positive and negative aspects to either approach, and often, people choose to perform the valuation early as a means of ensuring they have adequate time to negotiate in an effort to avoid going to court or in an effort to prepare for litigation. Those who have high-worth but difficult-to-value assets like businesses included in their marital estates may have a harder time managing the property division process and often need to plan accordingly.
