One of the most complicated issues in a divorce case can be the valuation and division of a family business. In some cases, there is a disagreement regarding which spouse should be awarded the business. Hence, there might be litigation regarding who should receive the business.

However, most of the litigation in an Orange County divorce will be regarding the value of the business and its cash flow. If there is an agreement as to who should get the business, the litigation will focus on the value of the business and its cash-flow. As with any area of law, there is room for interpretation and subjectivity resulting in more than one way to value a business. The spouse that will keep the business will generally want to pay as little for it as possible while the other spouse wants to maximize the value of the business.

This difference between spouses can result in each party hiring his or her own forensic accountant (sometimes a joint accountant is hired to save on fees). The forensic accountant will have to decide what method to use for valuation (depending on the type of business one method can be better than others) and the method to determine cash flow. Other considerations that affect the value of a business is whether the business in question is a C corporation or an S corporation. If its an S corporation, the forensic accountant must decide whether tax-affecting should be done.

Tax-affecting is the practice of subtracting income taxes from pretax income to arrive at a net income. Whether tax-affecting should be done or not can have a significant impact on the value of an S corporation and should be carefully considered. Any individual valuation a business should be asked regarding tax-affecting. If the evaluator or appraiser seems confused by this issue, one should consider choosing another expert.

Another issue that affects the value of a business is marketability or the lack of marketability. When a business cannot be readily sold in the open market, the value of the business should be discounted for lack of marketability.

Divorcing couples who have corporations should seek legal advise to make sure the business is properly appraised.

For more information, contact one of our knowledgeable and aggressive attorneys at 800-589-9901 or info@dieferlaw.com.