Many California couples own stock in one or more small businesses. In the event the couple decides to end their marriage, they may need to value the stock they own. If a divorce is not contested as to property division, an appraiser may not be needed. If, however, the spouses disagree on the worth of their business, an appraisal by a qualified business appraiser may be required to establish the value of the business. Some businesses cannot sold without destroying their value, and an appraisal of the value of the business can help the parties or the court divide the marital estate equally.
Business appraisers use three methods to value a business: asset approach, income approach and market approach. The asset approach uses the net value of the business’s assets to determine the value of the business. The income approach uses the enterprise’s anticipated future income to establish a current value. The market value approach attempts to determine the price that the business would sell for on the open market by comparing it to companies that were actually sold. Each of these methods can be varied depending upon the nature of the business.
The foundation for an accurate appraisal is information about the business. No appraiser can set a value without complete access to the company’s books and records, tax returns and the like. Other factors that may determine the opinion as to value is the percentage of stock that is owned; a majority or controlling interest is obviously worth more than a minority interest. Whether assets can be easily liquidated is another important factor.
A lawyer who is experienced in representing high income couples in divorces may be very helpful in obtaining and presenting a business appraisal. A knowledgeable attorney will be able to explain the accounting and appraisal concepts that underlie the report. The report will also aid the lawyer and his client in formulating a negotiating strategy if property division is disputed.
Source: California Business Valuations, “FAQs,” accessed on Dec. 11, 2017