Divorce and Business Valuations

  Posted on December 24, 2018
Divorce business vlauations can be expensive

Getting a family business valued is common in divorces in Nashville. There are three methodologies to value a business - The asset approach (What assets does the business own and what are the values of those assets?), the income approach (How much annual income does the business generate?) and the market approach (How much would the business sell for if it was sold?). Typically both spouses get their own business valuations. The husband's valuation is usually understated and too low. The wife's valuation is usually overstated and too high. The correct value is typically in the middle of the two extremes.

Sounds kind of like Goldilocks who was tasting the porridge... One bowl was too hot, one was too cold and one was just right...

Rather than each spouse getting their own business valuation which is skewed in their favor, it is best to hire a neutral business valuator. This professional is hired by both spouses and determines the value. Getting one business valuation is far less than half as expensive as getting two valuations for a few reasons.

1. You are paying one person not two to complete the evaluation

2. The financial information used in the evaluation is the most current. If there are two valuations, typically one spouse gets the valuation and gives the value to the other spouse. They object to the value and get their own valuation but, are likely using more current financial information. Because the different valuations are using financial information from at least 6 months apart, the values can be very different.

3. You are not paying two business valuators to argue back and forth over whose valuation is correct and why.

4. You are not paying two attorneys to argue back and forth over whose valuation is correct and why.

So, by having one neutral business valuation, you are paying one professional to do it right rather than paying 4 professionals to do it wrong and charge you for all the back and forth nonsense.
If you are divorcing and have a family business, I encourage you to have a neutral business valuation.

Posted in: Finances, Alimony