Accurate business valuation in the event of divorce is dependent on a variety of methodologies. If you’re wondering how a business is valued in a divorce, we cover the basics here.
What happens to your business after a divorce is totally dependent on how you and your spouse will make arrangements to divide your property. You do not have to wait until the divorce goes through to start making settlement arrangements. Even if the share of the business you claim was under the other person’s name and you did not make direct financial contributions, you are still entitled to a piece of the ‘pie’ according to Australian law.
Most settlement arrangements in the event of divorce are done by the court. Before doing so, the court will need to determine the value of the business that is to be settled.
Marital businesses are usually small and/or closely held. Most are not traded on the public stock exchange and therefore valuation tends to be rather complex. Valuation though is not out of the question. It can be done accurately by a competent financial expert who knows about valuations in divorce situations. Valuations in WA are typically done by a Certified Practising or Chartered Accountant who is accredited in business valuation designation.
The valuation process can not only be complex, but also lengthy and costly. You can opt to seek for an initial opinion from a business valuation expert. You should work closely with experienced expert divorce lawyers who will help you determine if your business has sufficient assets to warrant valuation.
Accurate business valuation in the event of divorce is dependent on a variety of methodologies which will help ascertain the market value of the business. They include but are not limited to:
- Direct comparison to recent sales evidence.
- Capitalization approach. A yield or income analysis of your business is done.
- Hypothetical development approaches. Costs and returns of development are considered to predict the market value of your business.
- Summation approach. Depreciated replacement costs of improvement are added together to an underlying land component.
All these methods gather and utilize information in forming an opinion on the market value of your business. More detailed information is required to make a more accurate assessment but as alluded to before, valuation during divorce is a rather complex process.
Business valuers in Australia practice in full accordance with the ‘code of ethics’ set by the Australian Property Institute (API). They perform their professional duty in line with the API valuation and property standards and rules of conduct. Actual or potential conflict of interest is identified and disclosed at the outset to all parties. It is the business valuer’s professional responsibility to remain completely independent throughout the process. The business valuer should always conduct themselves with integrity, fairness and honour.
You may not be content with a valuation report of your business and in such an event there are correct avenues for addressing your issue. You may have a conference with the business valuer to clarify the report. This allows for fine tuning of the information gathered and the report in general. You could also seek to do an independent business valuation as you seek to get a satisfactory valuation.
In the unfortunate event of divorce, both you and your spouse should opt to do an independent business valuation. This will be more pocket-friendly and equally accurate.
Director – Business Improvement
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The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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