In a pandemic-struck economy, how do you value a business during divorce?
I do not practice law in your state. Therefore, I cannot inform you as to the specific laws of your state, but I can provide you with general tips for this sort of issue.
Under almost all circumstances I would suggest it is best to move forward with the business valuation rather than wait until the economy stabilizes. Waiting to value the asset can be problematic and hurt you in the long run in not only receiving an unfavorable value, but also in terms of preparing your case for trial, and it could even prolong your divorce.
Crystal balls are not a tool lawyers use, and with something as unprecedented as COVID-19, it is difficult to know when the economy will be stabilized. Delaying a valuation until that day comes, if ever, only will drag out the already difficult and emotionally draining divorce process.
If you are the business owning spouse, it is best to value the business based on the value now because that is what the business is worth. It may go up in value, or it may not. Allowing the economy to stabilize will allow the non-owning spouse to shoulder none of the risk and receive all of the benefit, essentially allowing them to get a better valuation and therefore bigger award through no effort of their own.
Divorce courts are courts of equity and are tasked with dividing parties’ assets based on their value at the time of the divorce, not waiting until the assets have reached their peak value.
If you are the spouse receiving the buyout of the business interest and want it valued as high as possible, there is some risk to moving forward sooner than later with the evaluation when things are uncertain. However, it is hard to determine whether or not the business is undervalued until you have it appraised.
Waiting until the economy stabilizes also could result in the business losing even greater value as well, or perhaps not surviving. A business valuation expert also can address these concerns though, and is far better suited to advise as to whether or not the business is well positioned to bounce back when things stabilize or if it is teetering along.
Another consideration is timelines and being adequately prepared to move your case forward.
Since I am only licensed in Michigan, I cannot speak for every other state out there, but courts are tasked with resolving cases in accordance with timelines that they must adhere to, in order to prevent cases from dragging on for years at a time.
In Michigan, that timeline is one year from the date of filing. While courts can go beyond that when circumstances require, they do try hard to resolve cases within that timeline. Even under normal circumstances in Michigan, with a year at most to prepare for trial, it is best not to delay on something as in depth as a business evaluation.
Since business valuations can take time and require experts, it is best not to wait until the eve of trial and ask for an adjournment. Some judges are reluctant to grant adjournments, especially when waiting until the last minute and needing it only because you failed to do your due diligence in the many months preceding trial.
Even with the backlogs and delays due to shutdowns and the likelihood courts may be more forgiving with deadlines, you never want your case to rest on the whim of a judge.
Dan Pearce is an Online Editor for Lexicon, focusing on subjects related to the legal services of customers, Cordell & Cordell and Cordell Planning Partners. He has written countless pieces on MensDivorce.com, detailing the plight of men and fathers going through the divorce experience, as well as the issues seniors and their families experience throughout the estate planning journey on ElderCareLaw.com. Mr. Pearce has managed websites and helped create content, such as the Men’s Divorce Newsletter and the YouTube series, “Men’s Divorce Countdown.” He also has been a contributor on both the Men’s Divorce Podcast and ElderTalk with TuckerAllen.
Mr. Pearce assisted in fostering a Cordell Planning Partners practice area specific for Veterans, as they deal with the intricacies of their benefits while planning for the future. He also helped create the Cordell Planning Partners Resource Guide and the Cordell Planning Partners Guide to Alternative Residence Options, specific for seniors with questions regarding their needs and living arrangements.