In the first part of this two part series on determining the value of a business in divorce we examined four definitions of value in a divorce. The four definitions are Fair Market Value, Fair Value and Investment Value and Holders Interest Value.
It does not matter if the business was started during the course of the marriage or merely increased in value during the course of the marriage for the value of a business to be subject to division in a divorce.
After we understand the definitions of value of a business in divorce it is important to understand the various methods used to calculate the value of a business.
Fair Market Value
The first valuation method is to determine the Fair Market Value of a business. The Fair Market Value of a business involves researching what similar businesses sell for and estimate what a willing buyer and a willing seller will pay for the business. The valuation methodology is dependent on a willing buyer and seller. However not all businesses can be sold on the open market.
Fair Value
The second valuation method is to determine the value of a business utilizing the Fair Value. The Fair Value is determined by a shareholder agreement. The shareholder agreement provides for a contracted buy-out of a shareholders interest. However, not every business has shareholders and a shareholder buy-out provision.
Investment Value
The third valuation method is to determine the value of a business utilizing Investment Value. The Investment Value is the value to a specific buyer as an investment. This valuation method can be very complicated depending upon the business and the investor. For example, a business that pays a dividend, rent or other return on investment has value. A business with tax credits or losses may also have value to the right investor. The return on the investment to the buyer is the Investment Value. However, not every business has a return on investment.
Holder’s Interest Value
The fourth valuation method to determine the of value of a business utilizing Holder’s Interest Value. Holder’s Interest Value is measures the amount of money the business makes as an investment to the current owner. The idea is that the current owner of the business will continue to own and hopefully grow the business. This valuation method recognizes that a business owner going through a divorce will not be selling the business and will continue to receive the value of the business in the future.
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About Findling Law
I have been exclusively practicing divorce and family law in Michigan for over two decades. The attorneys at Findling Law all share the core value of practicing law to help people navigate change in their lives, without compromising principles. We specialize in high socio-economic, high-profile and high-conflict cases, while also working with clients of all backgrounds. We recognize that the most important aspect of the practice of law is the application of the law to your specific circumstances.
That is why we provide more free information on divorce and family law than any other Michigan law firm. We want to help you manage your situation. Allow our exceptional legal team to help you navigate the change in your life, without compromising principles.
About Findling Law
I have been exclusively practicing divorce and family law in Michigan for over two decades. The attorneys at Findling Law all share the core value of practicing law to help people navigate change in their lives, without compromising principles. We specialize in high socio-economic, high-profile and high-conflict cases, while also working with clients of all backgrounds. We recognize that the most important aspect of the practice of law is the application of the law to your specific circumstances.
That is why we provide more free information on divorce and family law than any other Michigan law firm. We want to help you manage your situation. Allow our exceptional legal team to help you navigate the change in your life, without compromising principles.
We want to help you manage your situation. Let our exceptional legal team help you . . .
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Or email me at: Daniel@Findlinglaw.com
By: Daniel Findling