Business Valuations in Divorce

 Posted on July 26, 2017 in Division of Property

In some cases, when a couple is seeking a divorce, a family business is one of the assets to be divided. Depending on the method chosen, it can be done very easily, with minimal interference to the company’s day-to-day operations. Before a business can be considered in property division proceedings, however, a business valuation is usually required so that the court can determine just how much the company may be worth.

Business Value and Asset Division

The main problem that many couples encounter when trying to achieve an equitable asset distribution when there is a business involved is that it is quite common for a business to be worth more than all other marital assets. If the company is well established and does brisk business, the bulk of the marital income may come from it. This can be resolved, in most cases, by one of two options. The business can be sold and the spouses will split the proceeds, or a structured property settlement can be established, wherein one spouse is paid the offset value of the business over a long period of time.

Regardless of which method is chosen, the business must still be valued by an expert. If you and your spouse have a good relationship, a full appraisal may not be necessary, but many people choose to enlist an experienced evaluator, usually a licensed appraiser, attorney, or a Certified Public Accountant (CPA). It is important to ensure that any evaluator complies with IRS regulations, as an “unsupported” evaluation could lead to an audit down the road, as could a value assigned after a cursory record search.

The Issue of Goodwill

One particularly tricky aspect of business valuation is accurately assessing the worth of what is called business goodwill, also referred to as enterprise goodwill. Goodwill is difficult to define, but an approximation is that goodwill is the value of a business in relation to how highly it is thought of by its customers—in other words, its likelihood of retaining a customer base. Such an intangible can be an asset (in the colloquial sense) in growing a business

Illinois law holds that personal goodwill cannot be considered an asset. Enterprise goodwill can, however, and it is generally valued along with the rest of the assets of the business. Personal goodwill, meaning customers’ likelihood to remain loyal to either or both spouses as owners cannot be quantified accurately enough to count. Also, if both types were counted in terms of business valuation, it is possible to “double dip” or to effectively count goodwill as two assets, when in reality it is only one.

Work With a Knowledgeable Divorce Attorney

Business valuation is only one complex step in the process of divorce, and you will need an advocate who can support you at every part of the journey. To get the help you deserve, contact an experienced divorce lawyer in Rolling Meadows. Call 847-253-3100 for a free consultation at Cosley Law Office today.

Source:

http://il.aaml.org/business-valuation-illinois-divorce-cases-application-personal-goodwill-discount