How are Businesses Valued in a Divorce?

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Oftentimes the single biggest area of disagreement in a pending divorce is the value of a business.

Some businesses can be easily valued by simply looking at their financial statements. However, more often than not, businesses will have some type of intrinsic value which doesn’t necessarily show up on paper. It is critical that you employ a well-qualified Michigan family law attorney who knows how to sort through the complexities of business valuation.

Like divorces themselves, there are no two businesses that are alike. Each business is a unique entity unto itself. Attorney Richard Lippitt respects and understands that each business needs to be evaluated in a unique manner.

Michigan family law attorney Richard Lippitt is highly experienced in representing clients that are facing complex business valuation issues. Additionally, Mr. Lippitt can draw upon a vast network of CPAs, forensic accountants, and other financial experts to serve as expert witnesses.

Mr. Lippitt and his network of financial professionals know how to value unique business assets, including:

• Family or closely held businesses
• Income generated from businesses
• Commercial and residential income property
• Other business property such as vehicles and specialized machinery
• Businesses that have off-the-books, unreported income (under-the-table income)

Oftentimes, one spouse is the owner of a business with his parents, siblings or his long-time business partner. The business owner has been very successful at earning revenue and amassing wealth through his business. However, even though the business generates substantial income, it looks as though the business is worthless or maybe even less than worthless (negative equity). This spouse will try to get the other spouse to believe that the business has little or no value. Conversely, some spouses will rely on certain facts to argue that a business is of significant value when, in fact, the business truly isn’t worth nearly what the other spouse is claiming. In both of these instances, you will need an attorney who knows how to sort through these claims and advocate for you in the most advantageous way.

Many times, businesses will acquire machinery that is unique and specialized to that business. When a business acquires a piece of machinery, they begin to depreciate that machine on their books over a multi-year period. Eventually, the machine, on paper, has been depreciated to a zero book value. Sometimes one spouse will try to get the other spouse to believe that a $500,000 piece of machinery that was purchased eight years ago has no value because it has been depreciated to a zero book value. Meanwhile, the spouse is using that $500,000 piece of machinery every day in his business and is continuing to make money with it. Conversely, in some instances, a piece of machinery is actually wearing out faster than it is being depreciated. In those instances, the spouse’s financial records may say that the machine is still worth $350,000 when in fact, it has worn-out so much that it's truly worth significantly less than that. Attorney Richard Lippitt is experienced in analyzing these types of complicated scenarios.

Business and residential real estate are also areas in which there can be a significant difference of opinion as to valuation. For instance, one spouse may own a piece of property that has multiple rent-paying tenants. There are a multitude of recognized methods of business real estate valuation. Valuation is typically set by some type of “multiplier.” A multiplier method of valuation takes the amount of rent received in a specific period of time and then multiplies it by an industry-recognized number. In order to gain an advantage, one spouse may use a multiplier which will yield a low valuation of the subject business real estate. In other instances, a spouse will try to apply an unrealistically high multiplier to inflate the value of the business real estate. In both the case of a low multiplier and a high multiplier, you will need to employ a well-qualified Michigan family law attorney who knows how to identify and respond to these tactics. Attorney Richard Lippitt has a wealth of experience in the valuation of income-producing property.

While we have certainly moved increasingly towards an electronic payment business world, there are still many businesses that deal in cold, hard cash. Trying to ascertain how much money a physician’s office takes in is not terribly difficult. After all, there are voluminous insurance records, credit card records, bank statements, etc. In fact, probably 99% of every dollar a doctor takes in can be easily accounted for. However, there are many businesses where that is not the case. For instance, construction tradespeople still continue to deal in significant percentages of cash. It goes without saying that that holds true for traditional retail businesses also. There is perhaps no harder business to value than that which is regularly receiving cash and not accounting for it. Attorney Richard Lippitt knows how to analyze this type of situation.