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Dodd & Dodd Attorneys, PLLC Louisville Kentucky

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An Introduction to Business Valuation in Your Louisville Divorce

An Introduction to Business Valuation in Your Louisville Divorce

Are you searching for an introduction to business valuation in your Louisville divorce?  One of the most legally and financially complicated and contentious issues in a divorce is the ownership of a business or professional practice. How is a business asset going to be classified (marital property, separate property or a commingled asset)?  If the business interest(s) are marital assets or commingled it will be important to establish an accurate value of these assets for property division.

If you own a business or are a licensed professional or a medical practitioner with an interest in a professional practice or a business of your own you want to know how to keep your business and how to protect ongoing operations and profitability during your divorce.

If you are the spouse of someone with an ownership interest in a business or professional practice you have in all likelihood contributed a lot to support your former spouse along the way.  You may have supported them while they finished their education or while they sought licensing.  The two of you may have used marital funds to support the business along the way.

In other cases, your spouse has owned and operated their business(es) and most often tries to convince you the value of their interest is virtually nothing, or the amount in their capital account, or some “buy-out” amount specified in the operating agreement or shareholders’ agreement of the business.

None of this is accurate.  The owner of the business in a Louisville divorce will not establish the value of that asset.  In our introduction to business valuation in your Louisville divorce we will discuss an overview of the process to establish the genuine value of any business asset and how it will be approached during the process of marital property division.

Kentucky law requires all assets (and debts) to be divided “equitably” between divorcing spouses. Before an asset can be divided equitably, it is important to establish not only the value of the asset itself but the equity it holds.  The process to identify the value of an asset and the equity in that asset in a divorce is known as valuation.

The reasons why it is important to get an accurate valuation of the business itself and/or the marital interest in the business cannot be overstated.  The higher the valuation, the more the owner of the business interest must provide to offset any marital interest their former spouse may hold. Spouses therefore have competing interests in the determination of valuation.

Several questions establish the process of valuation to be applied and ultimately the actual value of the ownership interests of a company.  What type of business is it?  How does it generate revenue?  There are multiple ways under Kentucky law to calculate and establish valuation of an asset.

One strategy of valuation is based upon income.  This process involves the financial and tax records of the company and established formulas to evaluate historical income and expected future earnings.  These formulas apply a factor to the established and projected income as well as benefits, risk and the rate of return one would expect on that income.  This is a very common valuation strategy.

Another method is the price the business interest would bring if it were offered for sale.  This is known as the “market” value.  It may be possible to compare the value of similar business interests which have been transacted recently in Louisville or throughout Kentucky.

The “asset approach” to valuation seems fairly simply on the surface: subtract the liabilities of the company from the value of the business assets to reach the value of the company at the present moment.  However, assets are both “tangible” and “intangible.”  The accepted value of some assets is easily and readily available, while establishing an accurate value of other assets is much more complex.  How does one account for the value of “goodwill” – the financial value of the reputation of the company and it’s owner(s)?

What happens if the business made an “off book” loan to a close friend or family member in the time leading up to or during the divorce?  What happens if the owner of the business attempts to manipulate financial and tax records or other information to water down the value of the business asset?

These are serious questions and the Court will take a serious interest in the actions and activities of both parties as well as the expert opinions provided by each side.

Often, our attorneys hire an expert on behalf of our clients.  It is not unusual for the Court to decide upon the expert and impose the costs accordingly.  Our divorce and family law attorneys will make a significant impact on the method and scope of the valuation.  The experienced divorce attorneys at Dodd & Dodd have worked with many expert appraisers and can provide sound guidance and counsel in these matters.  Allen M. Dodd provides important tax insights as an experienced tax attorney as well as a proven divorce and family law lawyer.

You will need to learn a lot more about the basics of business valuation in a Louisville divorce in order to protect your interests. We hope this introduction to business valuation in your Louisville divorce helps you to understand a bit more about the process and why it so important to work with experienced, proven Louisville divorce attorney from Dodd & Dodd if you or your spouse has business interests prior to or during a divorce.

We invite you to review the strong recommendations of our former clients and contact us or call 502-584-1108 to schedule an appointment with one of our experienced divorce and family law attorneys.