Divorce Business Valuations

Divorce Business Valuations

In divorce proceedings, business valuations often involve interests that are not being sold. Instead, the interest is typically awarded to one spouse. Courts commonly apply the Fair Value Standard, which excludes discounts for lack of marketability or lack of control. Removing these discounts can significantly increase the assessed value of a business or professional practice.

As noted in Harrison and Harrison (1996):

“The value to be ascribed to  shares in a family company must be realistic  one. This value should be based upon the worth of the shares to the party  himself or  herself.”

 Valuation Methodology in Divorce

The Future Maintainable Earnings (FME) or Discounted Cash Flow (DCF) method is frequently used in divorce-related valuations. These approaches estimates the value of an income stream, not the potential sale price of the business. It calculates the present value of future earnings without assuming a sale.

Importantly, value and price are not the same. Price may reflect additional benefits such as:

Synergies with other businesses

• Employment opportunities
• Lifestyle preferences
• The desire for self-employment

 Single Expert Witness in Family Law

In family law matters, business valuations are often prepared by a single expert witness. This approach helps reduce both legal costs and time spent in court.

Valuation methods can vary widely depending on the nature of the business. Key considerations include:

• The type and structure of the business
• The presence of business goodwill versus personal goodwill