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Do I Need a Business Valuation in My Illinois Divorce?

Posted on in Divorce

Wheaton business lawyerA divorce is an emotional undertaking, but it can become even more complicated if it involves business ownership. One spouse could be the owner of a company, or both spouses could own a business together. The matter of business valuation comes into play when deciding how the marital assets will be divided.

A business valuation is a set of processes and procedures for determining the economic value of a person’s interest in a business. This type of valuation is helpful since divorcing couples may not agree on a company’s worth or how it should be divided. It is important to note if the business began prior to the marriage and its profits have been kept separate and from the marital assets, then the business is normally not considered marital property.

Why a Business Valuation Is Important

One of the most time-consuming and stressful parts of a divorce is the division of marital assets since it requires an accurate inventory of everything that is within the marital estate or property. Determining the value of specific assets, such as household items like furniture, cars, or savings accounts, may be easy if a couple kept receipts or bank statements. On the other hand, estimating the value of the marital home, investment properties, and businesses is typically much more complex and may require the help of professionals.

The economy is constantly changing, so that can present unique challenges when determining a company’s value and, therefore, an owner’s interest in it. It is important to have a valuation that is as accurate as possible in order to divide it equitably in a divorce.

A divorcing couple can create an asset division agreement that protects the rights of both parties. For example, one spouse could be allocated other property as compensation for his or her interest in another business the couple owns. Another option is maintaining a business relationship even after the divorce. This typically requires a new contract or business agreement, as well as two partners who still get along.

Business professionals will set a standard of value before performing an appraisal on a company. Two standards are typically used: fair market value and fair value. Fair market value is defined as the price at which the property (or business/company) would change hands between a willing buyer and a willing seller. In addition, the buyer is not forced to buy and the seller is not forced to sell, and both parties have knowledge of any relevant facts regarding the sale. Additionally, fair market value can factor in the company’s estimated future income, its current assets and capital, and other facts such as a recognized name or good reputation

The definition of fair value depends on the context in which it is used. While it is similar to fair market value in some ways, it typically does not involve any discounts to minority owners. It is often defined as a shareholder’s proportionate share of the fair market value of the company as a whole. Also, fair value is dictated by the court that has jurisdiction over the case. The two standards can result in significantly different value estimates. In addition, the court can dismiss a business appraiser’s standard of value if it is not accurate. Due to the complex nature of assigning a value to a company or business, legal as well as business professionals can explain the intricacies of such a procedure if you are going through a divorce.

Contact a Naperville Business Valuations in Divorce Lawyer

If you have concerns over a business you own or co-own while going through a divorce, it is best to discuss the matter with a legal professional. Anderson & Associates, P.C. can help you navigate the business valuation process while keeping your best interest in mind. Contact a skilled Wheaton divorce attorney today at 630-653-9400 to schedule a free consultation.

 

Sources:

http://www.ilga.gov/legislation/ilcs/ilcs4.asp?ActID=2086&ChapterID=59&SeqStart=6000000&SeqEnd=8300000

https://www.entrepreneur.com/article/220124

https://mbafcpa.com/advisories/know-differences-fair-market-value-fair-value/

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