Sometimes, married couples start businesses together. Other times, one spouse has entrepreneurial dreams and the other supports them by continuing to work or managing the family affairs so that they can focus on their startup. One spouse might acquire a business through inheritance during a marriage.
If either spouse files for divorce, the business could be subject to division. Even when one spouse has no intention of keeping the business, they still have a right to claim their marital share of its value in their divorce proceedings. Determining what a company is actually worth can be a very difficult process. There are three different standards of value that can influence the final value set for a business during a divorce.
What are those three standards of value?
Business valuation is a very complex process that can return very different results depending on who conducts the valuation and what method they use. The three standards of value have a major impact on that process. Those standards are fair value, fair market value and strategic or investment value.
Many people are familiar with the idea of fair market value. They understand that this reflects what price the property would acquire when sold on the open market. This value can be similar to the fair value for the business but more likely to change.
Fair value typically reflects the actual current worth of the business, as opposed to what it might be worth based on the current market. While the fair market value frequently fluctuates, the fair value is typically more stagnant. Both are somewhat subjective.
The same is true of the strategic or investment value of the business. The strategic or investment value of the business is what returns people would receive if they sold the organization. The type of company and the way that the spouses intend to address it in their divorce can influence which of these three standards most strongly influences the valuation process in their divorce.
Sometimes, each spouse decides to perform a valuation, and they may then need to negotiate a compromise based on the different values reached by each spouse or the professionals they’ve hired. Determining the appropriate value for a business can be of the utmost importance for those seeking a fair outcome during an Ohio divorce involving a business or professional practice.
