BUSINESS VALUATION PROCESS FOR DIVORCE
Denver Business Valuation Divorce Attorney
There are many reasons why someone might need to know the full value of their business. You may have a potential buyer, are looking to sell it, or you may want to know the value for insurance purposes. Another common reason people seek to have their business valued is if they’re going through a divorce. In Colorado, property and marital assets are to be equitably distributed between spouses. A business operated by one or both parties in a marriage is considered one of these marital assets.
If you are in the process of divorce and seek legal counsel for your business valuation process, you need an experienced family lawyer on your side. At Litvak Litvak Mehrtens and Carlton, we are adept at all issues surrounding a divorce, including business valuation. Contact our offices today to see how we can assist you in this process.
What is Business Valuation?
As a business owner, you have put a lot of time and money into growing your business. It is only natural that you want to know how your hard work has paid off and how much your company is worth now. Business (or company) valuation is a way to identify the main value-generating areas of your business. It is determined by the level of financial risk for your specific business or industry.
It is important to consider which parts of your company are of specific value or interest to the profit of your business. This can give business owners, potential investors, or buyers an estimate of the economic value of the interest in a business. It is often used by financial market participants to determine the amount they should be prepared to pay or receive to carry out the sale of a business.
What is Company Valuation?
Company valuation plays a significant role in determining the approximate value of a business and all of its assets. The value of a business is different from the price of that business. The value of a company is the monetary measure of how beneficial it will be for the owner in the long run. It considers the profitability and risk of the business to gain an overall perspective of its potential income. The price, on the other hand, is the specific value of a business that is materialized at its moment of sale. It depends on the supply and demand of the current market.
What is Business Valuation for Divorce?
Even in the case that a business was in full swing by one party before the marriage occurred, it still becomes a marital asset that can be distributed between both parties in the event of a divorce. There are several aspects that will determine how your business is divided in your divorce.
Colorado is an equitable division state as opposed to a community property state. This means that marital property and assets are distributed without regard to misconduct or fault in the marriage. Instead, the court will divide property at their own discretion as they deem it fair. This means instead of divided equally or right down the middle, the courts will consider several aspects of the value of items and how they ought to be distributed.
Some assets are easier to value than others. For example, a car, home, or retirement account will be easier to assign an amount to because they have a market value. Businesses are not so easy to determine.
How to Valuate a Company in Colorado
The first step in valuating a company is understanding all of its assets. An asset is anything that generates money for the company. This includes both tangible and intangible property.
Tangible property would be things like inventory, operating equipment, or savings accounts. Intangible property would refer more to things like patents and trademarks, software, and goodwill with clients.
It is also important to understand the liabilities of the company. Liabilities are anything that cost the company money. This may include loans, owed goods and services, or payroll. To begin determining the value of your company, you would subtract the total of any liabilities from the total of any assets.
The next thing to consider is the profit of your business. This is found by the cost it takes to operate the business (expenses) from the money that it takes in (income). The number that is left over is the net profit. The net profit is calculated for specific time periods, including weekly, monthly, quarterly, and yearly.
There are different methods for valuing a business. The two most common methods of valuation are the market approach and the book value method. We’ll break those down below.
Market Approach
The market approach for business valuation is determined by the earning capacity of the business. It looks at what an outside buyer might pay for the company. It is determined by observing the income of the business and its value of assets over the last five or so years. You will look for any trends in income, increase or decrease, and use that to determine what the next five years might look like.
Book Value Method
The book value method for business valuation is what the company claims its assets are worth in the corporate books. It is generally determined by calculating the original cost of the assets and subtracting the amount that the asset depreciated over time. It may also be that the asset rose in worth due to market fluctuations. Some assets that commonly decrease in value over time include cars and equipment. Real property, on the other hand, often increases in value over time.
It is also important that you take into account the date that the valuation was completed. This is due to the fact that divorce proceedings may take several years to complete. A valuation that was done at the start of the divorce proceedings may not remain accurate when the case actually makes it to trial. You should aim for having the valuation take place as close to your court date as possible.
Contact Family Law Attorneys Litvak Litvak Mehrtens and Carlton
Determining the value of a company can be a complex process. Even more complex can be trying to prove the value to a judge, who ultimately has their own say in how assets will be distributed in the end. That is why it is crucial to have a family law attorney who is skilled in the area of business valuation for divorces. At Litvak Litvak Mehrtens and Carlton, we understand what it takes to properly value a business and then successfully explain it to a court. If you need help in valuing your business in preparation for a divorce, contact our skilled attorneys today. You can call us at 303-951-4506 or complete our online intake form here.