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Dividing a business in divorce: The use of a business appraiser

If you and your spouse own a business together, that can definitely make a divorce more complicated.

To ease frustrations and make certain that assets are divided fairly, it may be time to add a business appraiser to your divorce team -- especially if one spouse plans to pull out of the business and wants compensated for his or her fair share.

A business appraiser specializes in determining the estimated value of a company and its respective shares at a specific point in time. To really understand how the appraiser comes to his or her conclusions, it helps to understand how appraisers approach the process of valuation.

First, they assume a set of hypothetical conditions they can use to start the appraisal. For divorce valuations, there are two different methods that can be used -- which could potentially yield two very different results.

The first hypothetical presumes that the business -- or your share of the business -- is about to be sold on the open market to a willing buyer. If you own the minority share of the business, this may not be the most advantageous method of valuation to use because appraisers often apply discounts to the hypothetical value of minority shares for the lack of controlling interest and the lack of easy marketability. This method results in a "fair market" value.

The second method is called the "fair" value method. While essentially a similar hypothetical is involved, the appraiser won't apply the discounts that are generally attached to minority shares. If you own less of the business than your spouse, this may be the more advantageous valuation to use.

Ultimately, the issue of which valuation to use may have to be decided by the court -- state laws and precedents set by previous cases may have to be argued and considered in order for a judge to make a final decision about how to value the business and compensate whichever spouse is pulling out of the company due to the divorce.

For more information on how our firm can help you achieve a fair distribution of your business assets in a divorce, please visit our web page.

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Coates Frey Tanimoto & Gibson, AAL, LLLC
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