While parties are free to agree on property division in a divorce case, in the event of a dispute, Texas law requires a court to determine a division of marital assets that is just and right. The judge’s job is relatively straightforward when it comes to distributing such items as a residence, vehicle, bank accounts, and other assets. After evaluating the fair market value of the property, the proceeds are split equitably between divorcing spouses.
However, if you are an owner or stockholder of a privately held business, property division in divorce raises very complicated questions. Interests in a company are unique, typically requiring application of complex valuation formulas. If you are involved in such a situation, talk to an experienced attorney about divorce for business owners under Texas law.
Determining Business Value
Because of the technical nature of placing a value on a business, it is usually necessary to retain financial experts to assist with the assessment. These specialists employ generally accepted accounting principles (GAAP) to establish value, including:
- Book Value: This approach analyzes the assets, income, and debts of a company. Real estate, equipment, vehicles, accounts receivable, and other types of property are itemized, and the financial expert calculates the current value minus depreciation over time. The Book Value method is a basic way to determine business value, but there are drawbacks. It does not account for items unless they have a defined value. Intellectual property, goodwill, and the owner’s unique contribution are excluded, even where they are central to a company’s operations.
- Fair Market Value: Here, a company’s worth is established by determining what buyers have recently paid for a comparable business, operating in a similar industry. The focus is on buy-sell transactions for companies of the same relative size, age, and location.
- Going Concern Assumption: Under GAAP, this approach starts by looking at the status quo, assuming that the business will continue to operate under the same circumstances and economic conditions that exist at the time of valuation. Unlike the Book Value, certain assets of indefinite value – such as intellectual property and goodwill – are included.
Evaluating Intangible Assets
A company’s reputation and brand have value. Therefore, this goodwill should be part of a business valuation for purposes of asset division in a Texas divorce case. When one spouse is the primary source of goodwill, determining value can be challenging. The company is worth less by taking away that party’s contributions, expertise, and business relationships. Other assets that are difficult to assess for value may include intellectual property and trade secrets.
When it comes to evaluating intangible assets, the Going Concern Valuation is usually the most effective as compared to the others. This approach includes these values, resulting in a more accurate assessment of a company’s value.
Consult with a Knowledgeable Galveston, TX Divorce Attorney About Business Interests
If you own a business and are going through divorce, it is essential to work with an experienced lawyer for purposes of property division. To schedule a consultation regarding your case, please contact a lawyer at the Galveston, TX offices of Tad Nelson & Associates at 281-843-9776. You can also visit our website for more information.