Divorce cases involving a business can be complex, especially when it comes to determining the value of the business and how it should be divided between the spouses. In Oklahoma, a business owned by one or both spouses can be considered a marital asset and must be divided like other marital assets in the divorce case. The court will determine the value of the business and may allocate a portion of its value to each spouse as part of the property division award.
It is common for spouses to underestimate the financial worth of their business interests in a divorce. However, the court recognizes that even a small business has value and a court will take that value into account when dividing marital assets. This includes business assets such as stock shares or partnership interests, which can be divided if they are considered marital assets.
Determining the value of a business can be challenging and the court may rely upon the opinion of an expert business valuator to make the final decision. The valuation expert will review the business's financial statements, including accounts receivable and balance sheets, as well as the tangible and intangible assets of the business. They will also consider factors such as the business's prospects for growth and goodwill.
Three Approaches To The Valuation Of A Business
There are several approaches to valuing a business in a divorce case.
The Income Approach
The income approach is commonly used, where the value is based on the present value of the business's expected future income. This approach takes into account factors such as goodwill and may involve capitalizing the company's income over a specific period or estimating income for each year over a forecasted period. A discount rate may also be applied to determine the present value of the company's future earnings.
The Market Approach
The market approach compares the sales of similar businesses in the same geographic region and time frame to establish value. This approach relies upon the availability of reliable and comparable business sales for making a comparative analysis.
The Asset Approach
If the income and market approaches are not feasible or do not provide a reliable value, the asset approach may be used. This approach primarily determines the value of the business based on its asset holdings, such as unsold inventory, real estate, heavy equipment or machinery, and accounts receivable.
Once the value of the business is determined by the court, there are different options for dividing it. The court will routinely award the business to one spouse and order that party to make an offsetting property payment to the other party. In rare circumstances, a court can order the business to be sold.
It is essential to consult with a knowledgeable attorney if you or your spouse owns a business and you are facing a divorce. The attorneys at Brown & Flesch, PLLC have experience and expertise in handling divorces involving a business interest.