How the Michigan Divorce Court Evaluates Business Interest

One of the most confusing aspects of separation of assets during a Michigan divorce is how the courts figure out the business interest owned by one or both spouses. It’s one thing to distribute a car, a bank account, or a home, where the value is based on factors that are static. But the value of a business isn’t static; businesses make (or lose!) money over time, which means putting a value on them is a much more complex task. Here are the three major approaches the Michigan family court might use to assess the value of a business:

The Book-Value Method
Simply put, the courts may decide to check the ledgers of the business. By adding up the current value of all of the assets of a business and subtracting the value of any debts it owes, they can arrive at an easy number for a business’ value. Unfortunately, this method doesn’t take into account a vast number of intangible assets such as the owners’ expertise, the relationships the business has with vendors and contractors, or the reputation the business has within its target market.

The Market-Value Method
This method requires the court to seek out recent sales of businesses that appear similar to one they are trying to valuate, the same way a real estate agent reaches an estimated sales price by looking for comparable sales in similar areas. In this way, they can reach an estimate that takes into account the intangible assets by assuming that they’re similar to the intangibles of the other properties that have been sold. The downside, of course, is that sometimes it’s difficult to find recent sales of similar businesses, and the further back you have to look, the more changes in the overall economy can invalidate the comparison with your current business interest.

The Going-Concern-Value Method
The final method of valuating a business is to assume that it is going to continue operating as it does today, earning about the same about each year going forward as it did over the last few years’ average. Then the court will consider any factors that seem to indicate the business might not operate at quite the same level, revising their estimate slightly downward if needed. The expected profits are then translated into a reasonable price for a buyer to pay for the business interest. This methods typically results in the highest value for a business.

The Advantage of a Second Attorney in Business-Related Divorces.
As much as having a family lawyer like Gucciardo Family Law is an obvious necessity in divorce cases, if you own a significant business interest and you’re concerned about having it treated justly during the divorce, it may be wise to hire a business law attorney as well. This is especially true if your company’s reputation is at stake. Our family attorneys will do what is right for you and your family, and we can handle a business interest valuation — but it doesn’t hurt to have an expert on your side if you’re serious about getting the best valuation you can.