Valuing a Business During a Divorce

Richmond, VA Divorce LawyerThe income small businesses report may not accurately reflect the true income of a small business. However, when determining the marital estate, it is essential that steps be taken to ensure that the actual income of the business is acknowledged.

In order to gain a realistic understanding of a business’ income, you need to go to the source and do a bit of investigating. This may include: 

• Review of the company records and books by both parties
• Referring to a professional for adjustment
• Agreement by both parties of the company income


Fair Value Versus Fair Market Value 
Your lawyer will advise that there are basically two ways of approaching a business evaluation for divorce proceedings. In some jurisdictions, a company’s value is based on its worth to the owner (known as fair value); in others, its value is determined by what an individual other than the owner believes it is worth (known as fair market value). Great discrepancies may exist between these two different standards. 

When discussing fair value, the concept is greatly dependent on business conditions and may by quite subjective. For instance, the standards used to determine fair value in stockholder disputes may not be the same ones applied during divorce, and the standards used in divorce may be different from state to state as well as different within the state as counties and even judges differ in their interpretation. 

Problems also arise when judges and some experts incorrectly use the term fair market value for fair value. Although various definitions of fair market value exist, usually it is regarded as the amount a willing buyer will pay to a willing seller for his or her business.