January 09, 2018
Marital property is subject to a just and reasonable distribution between spouses under Indiana divorce law, whether the parties are able to come to an agreement or through order of the court. Dividing up property like a primary or secondary residence, vehicles, savings and checking accounts, and retirement benefits is relatively straightforward: After assessing the monetary amount, the proceeds can be distributed equitably.
However, when you are the owner or hold stock in a privately held business, the situation is more complicated. A portion of the value may be attributed to goodwill and/or the required involvement of one spouse in running the business. If you’re going through a divorce and have an ownership interest in a company, talk to an attorney about divorce for business owners under Indiana law.
Even before determining how to divvy up business ownership in the context of a divorce case, it’s first necessary to figure out how much it’s worth. In most cases, financial experts are required because of the complexities and approaches to business valuation. Specialists often turn to generally accepted accounting principles (GAAP) to make an assessment, such as:
Book Value: This method digs into the holdings, income, and debts of a company, starting with a list of all assets. Real estate, equipment, vehicles, accounts receivable, and other types of property are itemized, and a financial expert calculates the current value minus depreciation over time. The Book Value approach is one of the simpler methods of business valuation, but there are drawbacks because it doesn’t take into account items that don’t have a defined account balance or market value. Intellectual property, goodwill, and the owner’s unique contribution may be excluded, even though they are core to a company’s operations.
Fair Market Value: Here, a company’s worth is established by determining what buyers have recently paid for a similar business. The focus is on buy-sell transactions involving companies in the same industry and geographic region, of the same relative size and age.
Going Concern Assumption: Under GAAP, this method starts from an “as-is” presumption that the business continues 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.
Goodwill, i.e., an enterprise’s reputation and brand, has value. Therefore, this factor should be considered for purposes of asset division in Indiana divorce cases. When a business earns goodwill through the involvement and expertise of one spouse, determining value presents certain challenges. If that individual is no longer involved with operating the business, goodwill – and the value attributable to it – is diminished.
In addition, it may be difficult to measure how much intellectual property and trade secrets are worth. Because the Going Concern Valuation method does include these factors, it commonly results in the highest valuation of a business as compared to the other two approaches.
If you’re going through divorce and own an interest in a business, contact the Bellinger Law Firm in Fort Wayne, Indiana. We can assist with business valuation and other special considerations in your case.
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