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Valuing Your Business Prior To Divorce

business man

Going through a divorce is rarely easy. For business owners—whose professional and private lives are often intertwined—it can be especially difficult. Business owners need to know how to protect their legal rights and financial interests. 

As a starting point, it is imperative that you seek a comprehensive business valuation. Here, our Houston high net worth divorce lawyers explain what you need to know about business valuations and offer tips for business owners who are going through the divorce process. 

Why A Business Valuation Matters

Perhaps the most important tip for a business owner going through a divorce: Get a professional business valuation as quickly as possible.  Texas is a community property state. This means if your business was acquired or created during the marriage, then your spouse has an ownership interest in it and it will be considered when dividing assets. 

Of course, you cannot effectively divide your marital property if you do not know its actual value. With a comprehensive and well-documented business valuation, you will be in the best position to protect your financial interests. 

How Are Businesses Valued?

The valuation of a business is a complex process. Unless you hold interests in a public company that has shares that can easily be sold on the open market, there will likely be considerable ambiguity regarding the true value of the business. In most cases, parties should consult with qualified forensic accounting professionals to ensure that the valuation is accurate and well-supported.

Beyond that, certain business interests can be difficult to value. For instance, professional practices, such as those owned and operated physicians, are extremely hard to value. This is due to value being tied to the medical professional rather than inventory or existing accounts. Depending on the specific circumstances, different approaches should be used to value different types of businesses. 

As an example, parties may try to compare assets and liabilities to determine the “book value” of the company. In other cases, it may be more accurate to conduct a comparative analysis of similar firms in the area. Regardless, many different types of evidence will be used in comprehensive business valuation, including: 

  • Financial statements;
  • Tax returns;
  • Projected budgets for the coming years;
  • A buy-sell agreement;
  • Business loans, debts, and other liabilities; and 
  • Evidence that suggests future growth potential. 

Financial experts can assess the validity, reliability, and applicability of financial documents and records. Only with a full view of the context of a specific company’s operations can that business be comprehensively and accurately valued. 

Four More Divorce Tips For Business Owners

Every business owner who is going through a divorce should get a professional valuation. Knowing what your company is worth will help to build the foundation you need to move forward through the legal process. Of course, that is only a starting point for reaching a successful settlement. Here are four other divorce tips for business owners in Texas: 

  • Keep Pristine and Well-Organized Records: Although all divorcing couples can benefit from careful record-keeping, it is particularly important in high net worth divorce cases. Make sure that all of your financial documents and records are secured, organized, and in the hands of an experienced attorney. 
  • Business and Personal Expenses Should Be Separated: When business expenses and personal expenses are mixed, coming to a divorce resolution can be more challenging. There is simply so much that needs to be untangled and there is a lot of room for disputes to emerge. 
  • Consider Spousal Maintenance: Spousal maintenance can be more likely to be an issue in a divorce case involving a business owner. In fact, post-divorce maintenance or spousal support is an issue for many high net worth couples, from entrepreneurs and business owners to executives and professional athletes. Consider whether or not post-divorce support may be owed under Texas law. 
  • Look for Collaborative Solutions: Finally, business owners should always take a proactive approach and look for collaborative solutions. The last thing you want is for your divorce to cause damage to your business. In many cases, parties can reach an amicable settlement that works effectively and ensures that the business will be able to continue operations uninterrupted. 

Call Our Houston, TX Divorce Lawyers Today

At the Ramos Law Group, PLLC, our Texas family lawyers have extensive experience handling high net worth divorce cases, including representing business owners. If you have questions about business valuations or your legal rights, we are here to help. 

For a confidential, no-obligation consultation with an experienced divorce attorney, please contact us today. With law offices in Houston, Sugar Land, and The Woodlands, we are well-positioned to serve clients throughout Southeast Texas, including in Harris County, Fort Bend County, and Montgomery County.