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A business valuation is important in a divorce

On Behalf of | Jul 20, 2022 | family law, high asset divorce, property division |

The hard work that goes into building a successful company often isn’t recognized by people who haven’t done it. For some, all that hard work might seem like it was a futile effort because their business is in jeopardy due to a divorce. 

People who own a company before they get married likely have a prenuptial agreement that protects the business. Having the business valuated is likely on the to-do list for those who don’t have this protection. 

Why is business valuation important?

Without a prenup in place, the business will likely be subjected to the property division process during the divorce. Having an accurate valuation makes it possible to handle this properly. There are various methods of valuation that are possible. 

The valuation will usually include checking the income, outstanding revenue, cash flow, liabilities, assets, and projections of future earnings. It may include other factors. 

If you aren’t aware of the business’s finances, you may have to worry about sudden income deficit syndrome. This occurs when the person who’s intimately familiar with the business finances tries to make it look like it’s not as profitable as it truly is. This is often done by paying out money to fraudulent payroll or vendor accounts. 

Hiding cash income is also possible. A forensic accountant may help to unearth this. 

Anyone who owns a business and is going through a divorce should ensure they have a proper business valuation done to determine what to do with the business. Remember, this is only one facet of the property division process in a high-asset divorce. Thinking about all the possibilities can help you to determine what’s in your best interests.