When one or both spouses own a business, determining its value is often one of the most complicated aspects of a Washington divorce. Different valuation methods can produce significantly different results, making this a common area of dispute. Finalizing a divorcee involving a business valuation can turn into a major dispute and working with an attorney may be helpful to complete the process.
Common Valuation Approaches
Business valuators typically rely on one or more standard approaches, including the income approach, which looks at expected future earnings, the market approach, which compares the business to similar sold businesses, and the asset approach, which looks at the value of underlying assets. The most appropriate approach often depends on the nature of the business and the availability of reliable financial data.
Distinguishing Enterprise Goodwill from Personal Goodwill
A significant issue in many business valuations is distinguishing between enterprise goodwill, which is tied to the business itself, and personal goodwill, which is tied to an individual owner's reputation and relationships. Washington law treats these types of goodwill differently for division purposes, making this distinction an important part of the valuation analysis.
Using Forensic Accountants and Business Valuators
Given the complexity involved, parties often retain forensic accountants or certified business valuators to analyze financial records and prepare a valuation report. In some cases, a single neutral expert is used; in others, each party retains their own expert. These experts play a significant role in negotiations and, if necessary, in presenting evidence at trial.
Addressing How a Business Interest Will Be Divided
Once a business is valued, parties must also determine how to divide that value, whether through a buyout, an offsetting award of other assets, or, less commonly, continued co-ownership after the divorce. The right approach often depends on the practical realities of the business and each spouse's involvement in its operations.
Business valuation is a complex and often contested area of Washington divorce law, requiring careful analysis and, frequently, expert assistance. At Magnuson Lowell, P.S., we help business owners and their spouses navigate business valuation and division throughout Washington. We offer free telephone case evaluations to discuss your situation 425-800-0573 - call today!
