In a divorce, the valuation of a business depends on various factors. For instance, a professional practice will be valued differently than a company that sells merchandise and has inventory. Because there are many legal complexities and considerations, it is best to work with an attorney when valuing a business in a Chattanooga divorce. At Yates & Wheland, our skilled lawyers know how to work with the right experts and walk you through every step of the valuation process.
There are multiple parties that are typically involved in the business valuation process. Besides the client, these include:
The same person could fulfill the roles of the business valuator and forensic accountant, thus decreasing the costs for the client.
In many divorce cases involving a company, both parties may choose their own experts to value the business. These experts may have different approaches to the valuation process. An attorney’s role is to ask the right questions and understand what the differences are in the valuation methods. A skilled lawyer could then construct an argument to convince the Chattanooga court to adopt the method that is most beneficial for their client.
There are many methods and sub-methods that a certified business valuator could use for determining the value of a company. A business valuator will analyze the type of company, whether it is a corporation, sole proprietorship, professional corporation, partnership, or limited liability corporation. They will also need to adjust their method for the industry, whether the company is a widget maker, doctor’s office, real estate company, or lawn maintenance business.
There are three methods of valuation, including the market approach, the income approach, and the fair market value. A knowledgeable attorney at our firm could further explain these methods of valuing a business in a divorce.
This approach looks at the assets versus liabilities, as well as fair market value. Essentially, the value of the company is the difference between what the business owns and what they owe.
Rather than just assets minus liabilities equals value, a market approach looks at the value that would be assigned by the market in similar situations. This could involve a prior transaction involving the same business or an ownership transfer transaction for a comparable company. This method is a relative valuation approach because it values a business or intangible asset related to other actual valuation transactions.
An income approach generally looks at the present value of future earnings or cash flows. There are different methods within this approach. For instance, capitalization of earnings means the business value is equal to annual future earnings divided by a required rate of return. A discounted cash flow method means the business is valued equal to the cash flows during the first year divided by required rate of return minus the growth rate.
The legal team at Yates & Wheland knows how to work with appraisers and get the necessary information to help clients in their divorce cases. These experts help us understand the implications of the type of ownership the client holds in the business, whether they are a single member LLC, 50% owner, or owner of a controlling interest.
There are different types of ownership factors that come into play and help us decide what kind of valuation is the most beneficial for our client’s position in the divorce. For help valuing a business in a Chattanooga divorce, give us a call today.