Should I obtain a professional business valuation for my pending divorce?

Restaurant Owner serves up a bowl of soup

EDITOR’S NOTE – Men’s Divorce has previously addressed the topic of expert witnesses when business ownership factors into a divorce. In this article, Attorney Leslie Lorenzano of Cordell & Cordell’s Indianapolis office, explores the potential benefits of one class of experts – the professional business valuator.

As a business owner, a divorce can be especially daunting for a specific reason- You have a potentially large asset that is not easily liquidated. The value placed on your business can have a huge effect on the division of property in your divorce. In such a case, one major question entrepreneur clients often ask is, “how does the Court place a tangible value on my business interests?”

A common practice is to obtain a professional business valuation. There are many factors that can go into the decision to hire an expert, and below are some of the pros and cons of retaining the professional valuation.

  • Cost:  The expense of a business valuation can be quite significant.  Many experts will provide an estimated quote for their services, and the expense can range from $3,000-$30,000 or more, depending on the size of your business, the complexity of the industry in which you specialize, how organized your company’s books are, and several other factors. That being said, if you spend $10,000 but obtain a value that is $50,000 more favorable to you than your spouse’s proposed value, it is a worthwhile investment.
  • Time:  Business valuations can take a few weeks or several months, again depending on several factors.  This waiting period can be used to prepare other aspects of your case, but it can delay the final resolution of your divorce.  However, there can be a significant difference between resolving your case quickly, and resolving it correctly. A professional valuation will likely steer you toward the latter scenario.
  • Measurability:  The biggest advantage of obtaining a professional valuation is that it provides a concrete value for your business.  It removes a potentially huge gray area from your negotiations for property division during your divorce process.  Nonetheless, as with any independent evaluation, your attorney cannot guarantee the result of the business valuation.  The report may come back with a value that you believe is inflated or inaccurate.  You can ask some preliminary questions of the expert before retaining his services, i.e. about the types of valuations the expert may use (capitalization method, book method, etc.), the expert’s experience with businesses in your specific industry or of your size, etc.  Your attorney can assist you with selecting an expert who will provide a fair assessment. Ultimately, however, you and your attorney will have to place your trust in the expert once you have agreed to retain his services.
  • Litigation Readiness:  If you are going to litigate your divorce case, you want an independent expert witness who can attest to the value of your business in court.  This will provide you with substantive evidence that you can present to the judge on what your business is worth. Without the support of an expert, the Judge is left to question who is more credible regarding the proposed value of your business: the owner (who has an incentive to low-ball the value), or your spouse (who may know less about the business).  An expert allows the Judge to have something on which to rely for the value attributed to the asset in the Final Order.

Ultimately, whether to obtain a professional business valuation is a conversation you should have with your attorney.  It’s a decision that should not be made lightly, but it also should not be dismissed based solely on the cost or the time delay. Your attorney can help you evaluate the different reasons a valuation may help or harm your case.

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