It is important to accurately appraise the value of your business in a divorce case. A business interest is often a marital estate’s most valuable asset, even more valuable than any real estate holdings. Spouses may consider their business interests as inconsequential with little or no financial worth. But an Oklahoma court will assign some value to even a small, sole proprietorship for purposes of dividing marital assets in a divorce case.
A divorce that includes a business owned by one or both spouses is typically a marital asset that must be divided in the divorce case. It is often challenging, if not difficult, to ascertain the actual value of a business enterprise. As a result, an Oklahoma judge may make the final decision. This usually involves reviewing the business’s accounts receivable and balance sheet as well as any assets, tangible and intangible. It also includes analyzing prospects of growth in the future and goodwill. An experienced family law attorney can help facilitate the process and help you avoid mistakes involved in a high asset divorce.
The Business Valuation Process
There are a few different ways to undergo business valuation in divorce. The first option involves both spouses selling their shares of the business and dividing the profits. The second option involves one spouse buying out the other spouse’s share of the business. The third option is closing and dissolving the business. In property division the courts don’t always but sometimes do consider the basis for the divorce.
Property Division In An Oklahoma Divorce Case
Unless there is a prenuptial agreement in place Oklahoma law follows the equitable distribution model of property division in a divorce matter. This means that marital property is divided equitably. In effect, this does not mean that marital property is divided equally, or 50-50. Business assets, whether stock shares or partnership interests, are assets that may be divided in a divorce case if they are considered marital assets. This makes it crucial to properly establish the value of a business, especially when it is a marital asset of substantial value.
What Is A Marital Asset?
Oklahoma law defines marital property as all property and assets acquired by either spouse during the marriage, subject to some exceptions. This may include income earned by both spouses, real property, other expensive assets like automobiles, jewelry, and art, and separate property that appreciated in value because of the contributions and efforts of the other spouse. Separate property refers to assets owned by a spouse before marriage. However, exceptions to this rule include any gifts and inheritances received during the marriage.
Three Approaches To The Valuation Of A Business
Most experts use three approaches to the valuation of a business interest or enterprise.
The Income Approach
The income approach uses anticipated future profits and cash flow to calculate current value. While a complicated analysis, it is the most commonly used by people considering an investment in a business. The income approach is commonly used for valuing businesses in Oklahoma divorce cases.
A third-party appraiser establishes the value of the business based on the present value of the business’s expected future income. This approach includes goodwill. The method of capitalizing the company’s income over a single period using an expected rate of return or estimating income for each year over a forecasted period should yield a reasonable value for the business. 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 sales of similar businesses within the same geographic region and time frame to establish value. The market approach relies on the presumption that reliable, comparable business sales are available to make the comparative analysis.
The Asset Approach
The asset approach is often applied when the first two methods fail to generate a reliable value. This approach determines value based primarily on asset holdings for property such as unsold inventory, real estate, and heavy equipment or machinery. It will also include accounts receivable together with money in the company checking accounts.
Oklahoma Business and Divorce Attorney
Kania Law Office is experienced in dealing with the complicated financial issues related to business holdings in a divorce case. Our knowledgeable family lawyers have vast experience helping our clients favorably receive a fair and equitable division of marital property in their Oklahoma divorce cases. Call 918-743-2233 today and schedule a free consultation.