Any family law attorney will tell you that business valuation is one of the most contentious issues that a couple has to deal with during a divorce proceeding. Unlike a car, a piece of land, or a building, a business is not an entirely tangible asset.
So, a wide range of factors – from current income to projected future income, assets, liabilities, and goodwill – need to be taken into account while valuing a business.
Generally, there are three methods through which the value of a business can be calculated in a fairly accurate manner: the asset approach, the market approach, and the income approach.
Seasoned Massachusetts attorney Jay Davis, along with his team of skilled legal consultants, can assist you in determining fair business valuation in order to protect your rights in a divorce. Call us today at (617) 752-6216 or contact us online for a free consultation.
Even if you don’t want to hire a lawyer just yet, but only need a bit of knowledgeable advice from an expert lawyer in Massachusetts, feel free to give us a call.
The Asset Approach
In this method, the value of a business is determined using a simple formula — total value of assets minus total value of liabilities. Assets — in this context — includes tangible assets such as inventory, equipment, and infrastructure as well as intangible assets like trademarks and patents.
The Market Approach
In this method, the value of a business is determined based on the value of other businesses that have been recently sold. In order to make sure that the comparison is fair and valid, the valuator usually looks for businesses that meet the following criteria:
- Similar in size to your business
- Comparable earnings
- Operating in the same industry
- Located in the same region
It is similar to the concept of appraising a residential property based on the value of comparable properties — commonly referred to as comps — in the neighborhood.
This approach generally works best for franchise businesses, where it is easier to compare one business with another, since they are very similar to each other in almost all the aspects. For other types of businesses, it might be hard to find similarly-sized businesses to compare with.
The Income Approach
In this method, the value of a business is determined based on the income it currently generates and the income it is expected to generate in the future. It is one of the most commonly employed methods to determine the value of privately held businesses.
This approach takes the past performance of the business into account, estimates the amount of revenue it is likely to generate in the future, and uses the projected figure to calculate its current value.
In most cases, the revenue generated by a business tends to fluctuate from time to time due to various factors. So, the valuator also takes the risk factor — the possibility of a decline in revenue in the future — into their consideration while determining the value of the business.
Jay Davis has represented numerous people in Massachusetts who were in your situation once. Having a reliable and focused lawyer like Jay by your side will help you obtain the most favorable valuation of business assets in a divorce.
If you need legal advice for your property division in an MA divorce, give us a call at (617) 752-6216. We’d love to assist you in any way we can.
Dividing the Business
Under Massachusetts law, marital property needs to be divided between the spouses in an equitable manner. A business can be considered marital property if it was started after you became married. It can be considered a separate property if you started long before you got married.
It should be noted that under certain circumstances, your spouse might be entitled to receive a share of the profits, even if you happen to be the sole proprietor of your business.
For instance, if you used your spouse’s income to develop and expand your business, they might be entitled to receive a share of the profits. Similarly, if your spouse made any sort of labor-related contributions to your business — by working in any capacity — they might be entitled to receive a share of the profits.
In some cases, your spouse might not have directly contributed to your business at all. Still, their lawyer might argue that your spouse indirectly contributed to your business by staying at home, running the household, and raising the children, which freed you of your personal responsibilities and allowed you to work harder and develop your business.
In this case too, the court might decide to give your spouse a share of the profits from your business.
Running the Business After the Divorce
If your spouse only has a minor interest in your business, you can buy it out and become the sole proprietor. This is a particularly prudent idea if you and your spouse are not on good terms and your spouse is not willing to contribute to your business in any way after the divorce.
On the other hand, if you and your spouse are on good terms, you can jointly run the business as co-owners. This is a poignant idea if your spouse has a major interest in your business (which makes a buyout unaffordable) and is really interested in contributing to your business in any way they can.
Schedule a Consultation with Davis Law Group Today
At Davis Law Group, we have extensive experience handling complex business assets division cases related to divorce in Massachusetts. Since 1998, Jay Davis and his partners have been offering legal counsel to couples and individuals throughout the state.
As MA is an equitable division state, things can get tricky. If you’re looking for a tenacious divorce attorney who knows the intricacies of property division during a divorce, make an appointment with Jay Davis as soon as possible. Call us now at (617) 752-6216 or contact us online.The post Methods to Determine the Right Business Valuation in an MA Divorce first appeared on Davis Law Group.