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Business valuation in an Arkansas divorce

If you operate a small business or if your spouse operates a small business, setting the value of the business can be a very important aspect of your divorce.

Small businesses account for an increasingly large portion of the American economy. According to the U.S. Small Business Administration, since 1982, the number of small businesses has increased 49 percent.

Of course, all of these small businesses have owners, and many of these owners are married – at least for the time being. The rate of divorce has nearly kept pace with the proliferation of small businesses, with a 2014 paper from demographers at the University of Minnesota putting the age-standardized divorce rate at 40 percent higher today than it was in 1980. When a business owner gets divorced, a thorough business valuation can be essential to fairly divide marital assets.

Experts determine what a business would sell for

In Arkansas, all property acquired during a marriage generally belongs to both parties. Upon divorce, this property – the marital estate – will be subject to equitable property division.

Equitable property division generally means equal division of property and debts, but an Arkansas court may divide the marital estate unequally in certain instances for reasons of fairness. For example, if one spouse traveled alone a great deal during the marriage, a divorce attorney may be able to convince the judge to assign that spouse a greater portion of the marital debt. While most divorcing couples are able to come to a settlement agreement, the dynamics of equitable property division are still important because they underlie the negotiation process.

Like other assets, a small business can be marital property subject to division upon divorce. However, a small business is a very special type of property. Businesses can be complex, and it can be difficult to ascertain how much a small business is worth.

In most cases, a small business cannot be neatly halved like the contents of a bank account. This means that one spouse will likely have to “buy out” the other’s interest in the business by giving up a larger share of other marital assets. To this end, an accurate business valuation is essential.

Each side’s attorney may retain an independent expert to appraise the value of a small business. Alternatively, the parties may agree to jointly retain a neutral business valuator.

There is no single definitive way to value a business, but what the experts are essentially trying to get at is the expected price of what the business would sell for. Experts may look at the assets and liabilities of the business, the sale price of similar businesses, and the economic returns the business is expected to generate.

Unless the business is in fact being sold, a business valuation is always a hypothetical exercise, because the actual selling price of a business is determined in part by many intangibles, like the respective motivations of the buyer and seller. A business valuation is an educated guess, but it is one that is very important to get right, as it can have a significant impact on the economic outcome of a divorce for both parties.

Get help from an Arkansas family law practitioner

Whether you intend to continue to run a small business after divorce, or you want to ensure that you receive your fair share of marital assets in return for granting your former partner an undivided interest in a small business, you need an accurate business valuation coupled with strong legal arguments. An experienced Arkansas family law attorney can help you find a business valuation expert who will best complement the legal strategy in your case. Contact an Arkansas family law attorney today if you are facing a divorce involving a small business.

Keywords: divorce, business, valuation