If you are seeking a divorce in Texas and either you or your spouse owns a business that was started during the time of the marriage, it is likely this is going to become a contested issue in your divorce. Determining the value of a business is much more complicated than determining the value of real property. While looking at comparable sales in the same area is an excellent place to start, no two businesses are exactly alike, so several approaches to determining a business’ value must be employed in order to arrive at a final determination of value.
Your attorney will discuss options with you at the outset of your case, but it is likely that you will want to employ a business valuator to examine the business and provide their opinion as to the value of the business. You and your spouse might agree to start the process by hiring a joint business valuator and then seeing what their report says before hiring your own expert. While this may be somewhat costly, the expertise that a business valuator brings to the table cannot be underestimated. Business valuation concepts are incredibly complex, so if your case goes to trial, you will need someone who is an expert in the field to provide testimony to the Judge that explains in clear and precise terms how and why they arrived at their valuation.
The business valuator is going to look at the factors outlined in Revenue Ruling 59-60 to start the valuation. These factors are listed below:
- Nature and history of the business
- Economic and industry conditions
- Book value and financial condition
- Earning capacity
- Dividend paying capacity
- Goodwill or other intangible value
- Prior sales of the stock and percentage of the business being valued
- Market price for corporations in the same, or similar, line of business
In order to begin their work, the business valuator will need to examine certain business documents, such as those listed below:
- Business Tax Returns
- Income Statements
- Balance Sheets
- Sales or Operating Budgets
- Payroll Data
- Summary of Inventory
- Summary of Assets
- Employment Contracts
- Intellectual Property
- Incorporation Documents
- Financial Forecasts
- Business Organizational Chart
- Bank Statements
- Accounts Receivable Report
- Depreciation Schedules
- Summary of Dividends and Distributions
- Any other pertinent contractual documents (i.e. licensing agreements, nondisclosure agreements, etc.)
Once the business valuator has gathered and reviewed all of the necessary financial documents, they will schedule interviews with the owner spouse and other key executives. After compiling all of the necessary data, and conducting the necessary interviews and onsite inspections, the business valuator will compile a report that will be reviewed by the attorneys for use in court. It will take some time to receive the written report, but the findings contained within will be crucial to arriving at a fair and equitable distribution of the community estate.
Valuing a business in a divorce is one of the most complex issues involved in your divorce. Make sure to discuss these matters with your attorney in your initial consultation to make the most use of your time.
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