Dividing a business in divorce

On Behalf of | Apr 7, 2021 | Firm News

Texas is a community property state. All assets acquired during the marriage are deemed to be the joint property of both spouses. Determining the value of these assets is one of the most complex issues in a high asset divorce. One of the most difficult assets to divide is an interest in a prosperous business. One method of solving this issue is the use of a professional appraiser.

The appraiser’s task

The appraiser must determine the value of the business using one of three settled methods for this analysis. The appraiser must determine the fair market value of the business, i.e., the amount of money that a willing seller will accept for the sale of the business to a willing buyer. The appraiser must look at the business as if it were for sale on the open market. In most instances, the parties will agree to retain the same appraiser in an effort to save money, but in other cases, where the levels of acrimony and distrust are high, each party may retain its own appraiser.

How the appraiser determines value

Different appraisers may use different approaches to reach a determination of fair market value, but the underlying techniques are very similar. An appraiser must first visit the property and learn how the business operates. Depending on the nature of the business, the appraiser may photograph and measure the business premises. If the business relies on complex equipment, the appraiser may prepare an inventory of the company’s assets.

After making an inventory and visiting the company’s facilities, the appraiser will decide on a basic approach: net value of assets or the company’s likely income over an appropriate period. Experienced appraisers often make two separate estimates of fair market value before deciding on a final estimate. For companies with scant physical assets, such as a law firm or advertising agency, the appraiser is likely to rely more heavily on the income approach. Each case is unique, and an experienced appraiser is likely to use different approaches depending upon the facts of the case.

Now what?

In deciding whether to retain an appraiser, a person facing a divorce may wish to consult an experienced family law attorney. A knowledgeable divorce lawyer can offer advice on the nature of the appraisal and provide counseling on the choice of appraiser.