In today’s unpredictable economy there has been a continuing growth of small businesses and a substantial decrease of existing established businesses in Texas. In the regrettable instance of “Divorce” how may the “Family Business” be divided between a dissolving couple to reach a fair and reasonable result for both parties?
In such a situation, an experienced Family Law Attorney with the aid of economic experts becomes critical in establishing a fair and equitable price on the business, consulting the client on their rights relative to the business, helping with negotiations for a business entity to be sold, transferred, or appraised, and making sure the client’s rights are protected in the transaction.
The most important fact to establish is a credible determination of the true fair market value of a business and how the business or the business assets are to be divided between the spouses in the divorce.
The dividable interest is determined by the fair market value of the business. This value is the price a willing buyer would pay and a willing seller would give in a purchase with both buyer and seller having reasonable knowledge of the relevant facts of the business and neither being under pressure to buy or sell the business.
During a Divorce, the concept of a credible hypothetical buyer and seller may be determative and very complicated. Going through a divorce is difficult enough, but fairly determining the true value of the business in the process can be complicated and sometimes expensive. There are always two different ideas in every divorce and the family business will bring out the some very serious opinions of just what is the “fair market value”! Ideas may range from too high in today’s economy to too low base on emotional attachments, complicated further by feelings as to possible other family members who own or claim parts of the business. The value placed on proposed purchases that are not part of an arm’s length transaction may not be relevant to the correct fair market value.
To help determine the fair market value and complete the transaction fairly for both parties the family law attorney must be able to obtain and review all business and financial records, financial statements and tax returns, and any other pertinent information for the preceding 5-7 years. Often an independent business appraiser or CPA will be retained to help in determining a credible and correct valuation of the business that a Judge or Jury will respect.