Business Valuation in New Jersey Divorce Cases
When two business-owning spouses decide to get divorced, one of the most important elements of their divorce case will be the dividing of their company. However, the equitable division of a business is not possible without a thorough business valuation process, in which the fair value of a company is calculated by a qualified professional such as a business appraiser or a forensic accountant, with the help of an experienced attorney. If you and your spouse co-own a business and want to ensure that its full value is assessed, a member of our legal team can explain the nuances of business valuation in New Jersey divorce cases.
Definition of Fair Value vs. Market Value
A business valuation is an essential step in the process of assessing and dividing the worth of a company during a divorce case. A business is valued on the basis of fair value rather than fair market value. In New Jersey, the appropriate standard of business valuation is the fair value, and this is applied to closely-held corporations that are not publicly traded. A fair value is essentially calculated as a fair market value without the discounts for lack of control or lack of marketability.
This means that the evaluator will not take into account the changing of hands of the business, and the number that is calculated is not the market worth of the business, but instead represents the worth of the company to its individual owners. For example, the factors that are evaluated during this process would include the amount of income both spouses produce from the business. The fair value increases the value of the business that is subject to equitable distribution, as the evaluator is not taking into account factors such as the time it would take to sell the business, which would be calculated in the fair market value.
Importance of Keeping Accurate Records
Valuing a business can be difficult if the company does not maintain organized or accurate records. For example, if a business has not filed tax returns, it can be challenging for a forensic accountant to make any calculations and oversue tax returns may need to be filed before the valuation can be continued. It is crucial for a business-owning spouse to cooperate with their lawyer and accountant and provide all the requested documentation for an accurate valuation.
If a business has unreconciled accounts, an accountant will have to work in reverse and trace the cash by going through all the bank records to identify and sort all business expenses. Though this can be done, the process is much smoother when a business owner simply provides the requested information and has kept their books and records in an organized fashion.
Role of a Forensic Accountant
The forensic accountant’s role in a divorce case of this nature is to first determine the necessary information for the valuation of the particular business, whether that be financial information, appointment books, payment documents, deposits, bank account records, tax information, or QuickBooks. Once they have received this information, they will conduct a careful analysis of the documents and give their findings to the divorce attorney. The forensic accountants may also participate in the court proceedings if the judge in a particular New Jersey divorce case wants to hear from them directly regarding the valuation of the business.
In these cases, it is the attorney who must ensure that the information is obtained, whether through a cooperative, opposing party, by sending out subpoenas to get the information directly from the sources such as banks, or a through court order to compel production of certain documents. It will later be the attorney’s job to use that information to advocate how the business should be divided between the spouses, as they are aware of the different considerations of the law that are relevant in these cases.
The court may appoint or the parties may agree to use a joint forensic accountant to save resources. The same principles above apply in such a case.
A New Jersey Divorce Attorney Can Ensure that Your Business is Valuated Accurately During Your Divorce
Divorces often lead to complicated legal proceedings, but the process of dissolving your marriage can be even more challenging if you and your former spouse own shares in a business. Fortunately, a New Jersey divorce attorney can offer guidance as you undergo the process of dividing this major asset and answer any questions you have regarding business valuation. Contact us today to schedule a consultation and get started on your case.