The challenge of a business valuation interest during a Louisville divorce is quite legally and financially contentious in many cases. How do you establish the “marital interest” portion of the valuation of a Louisville business during a divorce? Why is it important to ensure an accurate valuation of a business or company during your divorce? There are many ways to position the present value of a business, and as a result, a spouse’s marital interest in the business. This can be a complex financial and even tax issue, and requires an experienced divorce attorney who has the expertise and sophistication to understand the nuances involved while working to establish a fair valuation for that business interest.
A recent client presented the following scenario:
My husband opened his company here in Louisville along with his best friend. They both still own and operate the business, which has multiple employees and become very successful. It makes a substantial amount of money, but my husband says the “corporate documents” establish the value of his interest as only $35,000. Is the amount of money he invested in the company really all his interest is worth? He constantly brings up the tax returns and how we both signed them, and that the “tax returns tell the full story. That’s what the business will be worth in the divorce.” I think its worth a lot more, but how will I know?
The legal fact of the matter is the valuation of a business interest in a divorce is not going to be decided by anything within the “corporate documents” or even tax returns or the profit and loss statement(s). These might provide helpful information for a valuation, but they can also unfortunately be manipulated to show any amount desired – usually in an attempt to convince a spouse the company is worth much less than it really is. This is the challenge of a business valuation during a Louisville divorce and why the process is so important. The owner of a business wants the valuation to be as low as possible for one reason: if they want to keep it, and the business is in whole or in part a marital asset, the business owner must in effect “buy out” or “offset” the marital interest of their spouse in order to keep the business asset after the divorce. The higher the valuation, the higher the cost to the business owner to keep the company.
This is also the reason a spouse should be interested in assuring an accurate valuation. There are unfortunately a lot of financial “strategies” (read: games) that can be played in an attempt to under-value a business asset in your divorce. You need to know that each spouse owes the other a strong legal obligation known as a “fiduciary duty” to be honest and transparent, and to generally act in the other’s best interests. Attempting to manipulate the value of a company is not something the Court will look positively upon, and could very well backfire against the business owner.
The essence of the challenge of a business valuation during a Louisville divorce is to assure an accurate valuation of the marital interest at stake. What is an equitable division of this business interest and what are your own unique goals and objectives? This is why it is so important to work with the experienced divorce and family law attorneys at Dodd & Dodd. Get the right answers to your questions. It is never in your best interests to take divorce advice from a former spouse. We will help you to understand the process and protect your interests when an ownership interest in a business or professional practice is a marital asset in your divorce.
It is always important to make sure the business continues to operate in a consistent and profitable manner while establishing an accurate valuation of any marital interest in a business or professional practice. If necessary, forensic accounting will help to identify financial manipulation or tactics designed to manipulate the valuation of a business interest here in Louisville.
We invite you to review the strong recommendations of our former clients and the legal industry and contact Dodd & Dodd or call 502-584-1108 to schedule an appointment with one of our attorneys.
