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Valuing your family business for a complex divorce

| Jan 5, 2021 | High-net Worth Property Division |

A formal valuation of a family business in California can simplify a complex divorce, especially if it has an LLC structure. According to the California Tax Service Center, a limited liability company combines partnership and corporate characteristics.

This entity type is appropriate for a family business with multiple owners and makes it simpler to restrict membership to a specific few. If you must divorce, the structure allows for easy ownership division.

Valuation methods

Having an LLC doesn’t mean it has a definitive value when negotiating a divorce settlement. An official business valuation determines its worth. It considers the actual monetary value as well as its goodwill within the community. Professionals can use a variety of methods to reach an acceptable valuation. The most common methods include the following:

       Income approach – Looks at current earnings and creates forward projections

       Market approach – Considers similar businesses and their value when sold

       Discounted cash flow approach – Allows for flexibility in growth rates, margins and debt repayment

While a professional can use any of these methods, the most appropriate option depends on various factors, including the industry and status of the market.

Forensic accountants

You may benefit from a forensic accountant working with you. This type of accountant has specialized knowledge and investigative training in addition to the skills utilized by CPAs. They can act as an expert witness if your case goes to trial. They may conduct the valuation or confirm the findings of the professional hired by your soon-to-be-ex. Depending on the unique circumstances of your case, you may keep the company intact by remaining owners, buying out your spouse or sell it to a third party. Learn more about how you can handle a family LLC during a divorce here.