Closely Held Business Valuation in Divorce
HOW ARE SMALL BUSINESSES VALUED IN DIVORCE CASES IN MASSACHUSETTS?
When one or both parties own a small or “closely held” business, upon the divorce the court must value the business for purposes of division or assignment. In many cases, the closely held business is run by just one party. Businesses may take many different forms, including a partnership, limited partnership, corporation, limited liability company, or sole proprietorship to name a few.
When parties go through divorce, if they are unable to agree on the value of the small business then there will be a trial and the judge will make a determination as to the value. Both parties would be wise to submit evidence regarding the value. Usually, the owner-spouse tries to show that the value is low and the other spouse tries to show the value is high. The evidence submitted will take the form of expert testimony, where a business valuation expert will testify that the value of the business, based on the factors identified below, is a particular number. The expert is usually a CPA or chief financial officer of the company. Sometimes other experts are utilized such as business evaluators, brokers, appraisers or auctioneers.
The factors that will be considered include:
- The nature of the business in general
- The business’ economic outlook including the overall economy
- Book value of the stock
- The earning capacity of the company
- Market price of stock of corporations of the same or a similar business.
For additional free information about divorce and business valuations in Boston or New Bedford, please call or email our office today. We look forward to hearing from you.