Balancing Business Valuation and Divorce in Michigan
Even in its most basic form, divorce is a stressful and demanding time involving a variety of emotional, financial, and family components. Throw a business into the mix and it dramatically raises the complexity of a “traditional” divorce case.
Navigating areas of disagreement is never easy and business value is one of the most common, and intensely debated, issues. Like relationships, every business is different and it is critical to understand valuation aspects to ensure an amicable result agreeable to both parties.
Putting a Value to It
Amicable can sometimes seem like a nebulous or unattainable thing, especially when one spouse is part a longtime family business. Perhaps his or her parents are still involved or siblings own part of the company. Every additional party brings another set of emotions and ideas and can present very challenging situations. For example, a business might appear to be worth a great deal of money but one spouse might attempt to convince the other that the company operates in negative equity.
Specialized equipment is often part of a business and is typically depreciated over the years. A common approach in divorce cases is to portray equipment as having a zero value on the books, but the equipment is still used in the company’s everyday operations.
Real estate is another area that breeds vehement opinion and internal battles in divorce proceedings. Consider a property that brings in rent from tenants; in Michigan and most other states, valuation of that property is typically identified by a multiplier of rent received over time. To gain an advantage in a divorce situation, a spouse might attempt to present a low property valuation and associated income. In other cases, accurate records from cash-based income create more questions—and potentially more accusations—than answers.
Keeping it Fair
Without truly knowing the full value of assets, dividing them is guesswork. However, Michigan divorce cases typically employ three primary approaches to business valuation.
• Book value. This approach simply looks at a company’s assets minus depreciation but does not consider intrinsic value such as business reputation.
• Market value. This is an estimate of what an investor might pay to purchase the business. This approach tends to result in a higher business valuation.
• Going concern valuation. This approach assigns a value to the business as continuing operations and includes intrinsic value.
A key issue to be aware of in asset division is “double dipping,” or paying twice for a single thing. For example, a spouse retains a business but also must pay alimony from the business’s future earnings.
Consider the Big Picture
Business valuation and division is a contentious and often heated procedure but there are several general tips to keep in mind before moving forward.
Determine if the business is separate or marital property, when was it acquired, and where did the funds come from. Next, learn the true value of the business and finally, what is the future of the business?
Plan ahead, get organized, and work with reliable partners. Contact the experts at The Gucciardo Law Firm today at 248-723-5190 to discuss your options.
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