Business ownership may cause a divorce to be more complicated. If possible, there should be a business valuation process prior to the filing of the divorce.
It is vitally important to determine the profit a business earns. Also essential, is how to value the business as an asset to be divided upon divorce. The business interest owned by the community estate will be subject to division upon divorce.
Business Valuation upon Divorce
A business valuation during divorce may be simple or complex. If there are multiple owners it may be more complex. The appraisal is going to be a key step in the divorce process.
The valuation process will include meticulous review of bank statements, tax returns, and other documentation. This appraisal will help value the business interest in relation to the rest of the marital estate.
Fair Market Value and Book Value
What an appraisal is attempting to accomplish is to determine the “fair market value” of the business. The fair market value of the business should not be confused with the “book value” of the business. The fair market value of the business is the amount that would be paid in cash by a willing buyer who desires to buy, but is not required to buy; to a willing seller who desires to sell, but is under no necessity of selling.
On the other hand, the book value of a business is the value shown in the books of the business. What I mean by value shown in the books, is the total value of the assets as shown on the books and deducting the total liabilities.
I believe the fair market value of the company is the more valuable number to obtain when dividing an asset upon divorce. Specifically, the Texas Supreme Court has ruled, that the “book value is entitled to little, if any, weight in determining the value of corporate stock, and many other factors must be taken into consideration…”
Business as Community Property
As discussed above, the reason why the business valuation is important to the divorce process is that the business is subject to division upon divorcee. Texas is a community property state. What this means is that the assets obtained during the marriage will usually be community property. The designation as community property means that the property will be subject to a just and right division upon divorce.
Generally, if the business was acquired or started during the marriage and there are no enforceable agreements designating the property as separate, then, usually the business will be community property.
How to Manage Business Valuation
Whether you wish to retain ownership of the business or ensure you are properly compensated, the first step in the process is hiring a competent business appraiser to determine the fair market value of the business. If you know that you are going to need an appraisal the follow is a non-comprehensive list of documents and information that will be helpful to the appraiser:
- A balance sheet reflecting each quarter going back at least 5 years,
- Income statements (profit and loss statements) going back at least 5 years,
- The legal structure of the business,
- Documents relating to percentage of ownership,
- A detailed history of the business,
- A ledger for the past couple of years,
- Contracts, or agreements,
- Payroll information.
Consult With an Attorney
Your business is an important asset in your marital estate. Make sure the business valuation and property division process is handled properly by choosing an experienced attorney. To learn more about how we can assist you, call 512-335-5245 to schedule a consultation.
If you have questions about the division of marital assets in Williamson County, call the Round Rock Law Office of Clifford Swayze at 512-920-5080.
We serve Williamson County, and Austin, Texas: Cedar Park, Round Rock, Leander, Georgetown, Liberty Hill, Hutto, Taylor, Killeen, Temple, Coppers Cove.