Under Maryland divorce laws, business ownership (100% or partial) is considered Marital Property if the ownership was started or the business has increased in value during the marriage. To further complicate matters, only the Enterprise Value of the business is considered the Marital Share. Personal Goodwill belongs to the owner of the business.
These are the steps that I recommend to my clients or to their attorney, who have this situation:
- Request the last 3 years financial statements and/or tax returns of the business
- Have a neutral CPA review the items in number 1 above to assess if there is some potential value and if there are enough assets for a trade.This can save you time and money if the business does not have any value or any value other than Personal Goodwill.
- Obtain two or three quotes from experienced and knowledgeable divorce business valuation experts
- Complete a cost/benefit analysis to determine if a valuation would be cost effective
- Review the valuation and ask the valuation expert detailed questions about the assumptions used in the valuation
Business valuations are can be very expensive so step 4 is crucial to the decision-making process. Also, ask questions to the lowest bidder as to why their costs are substantially lower. If you believe that your case could go to litigation, you will need an valuation and a valuation expert that can pass the scrutiny of the courts.
Developing a business valuation is both art and science, so I cannot overemphasize the importance of step 5. Faggio Financial has developed a list of crucial steps that should be taken when a valuation report is delivered. Click above to gain immediate access to our recommendations.
John Faggio is a CPA, CFP, and a Certified Divorce Financial Analyst™. Faggio Financial is Maryland’s only exclusive divorce financial planning practice. If a business valuation is part of your divorce negotiations, email or call John today at 410-988-7333 for an initial, flat-fee consultation or a quote to review or prepare a valuation report.