North Carolina is an equitable distribution state. This means that marital assets acquired during the marriage must be valued and that the marital estate be distributed between the parties. Very often, parties to a separation and divorce own in interest in a small business. Most people don’t realize that the business owner’s marital interest in the business will have to be valued for purposes of equitable distribution.The following is a simple fact pattern which illustrates what business owners involved in a separation and divorce need to know. John Businessman is an 80% shareholder in a closely held corporation that he formed prior to marrying Susan. After fifteen years of marriage, John and Susan are divorcing and the company is being valued as part of the marital estate. What do business owners like John and Susan need to know about valuing their business in the event of divorce?

• Should my business be valued by a professional?

There are a number of accrediting organizations that offer education leading to certification in business valuation some of which are fairly easy to obtain. While a number of professionals such as CPA’s, business brokers, Certified Financial Analyst and business appraisers hold themselves out as business appraisers, many hold minimal and some hold no meaningful certifications. When the closely held company comprises a substantial portion of the marital estate, failure to retain a qualified and experienced professional can result in the marital estate being substantially over valued or undervalued. In addition to retaining a highly qualified and experienced business appraiser, business owners need to retain a business appraiser who has previously been accepted by a court as an expert in business valuation and whose opinion of value has been accepted by the court. A divorce attorney with expertise in cases involving business valuation can provide essential strategic advice on what appraiser should be engaged and what appraiser should be avoided.

• What steps can I take to protect my business?

Retaining divorce counsel with experience and expertise in cases involving business valuation can make or break the outcome in a case. In most instances, both spouses will hire an expert to value the business. The values established by each expert will be subject to intense scrutiny as they are often widely divergent. Your divorce attorney needs to have a thorough understanding of business valuation in order to select a competent appraiser, review and understand the appraiser’s opinion of value, understand the opinion of value of the opposing appraisal expert and identify errors in the opposing report for purposes of discrediting that opinion of value in deposition and ultimately in trial if the case does not settle. In cases where a business is the most valuable component in the marital estate, retaining divorce counsel experienced in cases involving business valuation is one of the most critical steps in gaining an advantage.

The divorce of a business owner impacts not only the owner, but it can impact the company as well. Valuation for divorce purposes can set a precedent if the company is subsequently valued for other purposes such as a merger or acquisition, financing or estate planning purposes. One of the most important things a business owner must do when faced with divorce is to retain counsel with experience in business valuation cases to provide essential advice on protecting the rights and assets of the business owner.

Contributor: Cathy C. Hunt: Cathy C. Hunt, Raleigh Family Law Attorney is a leading North Carolina Divorce Lawyer and is experienced in business valuation in cases of separation and divorce. She is a partner with the North Carolina Family Law Firm of Gailor, Wallis & Hunt, PLLC. For more information contact: North Carolina Family Law Firm, Gailor, Wallis & Hunt, PLLC, 1101 Haynes Street, Suite 201,Raleigh, NC 27604,Tel: 919-832-8488, www.gailorwallishunt.com.

Disclaimer: The information contained in this article is intended as a general guide and is not to be used as legal advice by Gailor, Wallis & Hunt, PLLC. Whether or not you may be entitled to take action in regard to the information addressed in this article can only be determined after a thorough review of the facts and circumstances of your case by a qualified family law attorney

This entry was posted on Tuesday, March 10th, 2009 at 8:53 pm and is filed under Business Valuation in Divorce, Divorce Education. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.