If you and your spouse have decided to end your marriage, you are probably already dreading the property division phase of the divorce proceeding.
For example, how will the value of your family company be determined, and how will division be handled?
Estimates may differ
As one of the first steps in the property division process, a family business must have a standard of value assigned before it receives an appraisal. There are actually two standards out there: fair value and fair market value. An agreed-upon price at which property changes hands from a willing seller to a willing buyer is known as “fair market value.” To this, an appraiser might apply discounts – such as lack of marketability – in reaching a value determination. On the other hand, “fair value” is based on the use of the property. There are usually no discounts involved, and the court determines the value.
These two standards could produce very different estimates. Here in the U.S., jurisdictions differ in which standard they use.
In a divorce cases, the parties may have significantly different ideas about the value of their family business. The matter could be further complicated if the wrong standard is used for the jurisdiction. So, using the right standard for the situation can be critical.
Another valuation method
In divorce cases, another common method of business valuation is when an appraiser uses the concept of estimated revenue. The appraiser determines the worth of a business by calculating how much future income the company will pull in based on current income value. However, some argue that in terms of property division, this valuation method is unfair, especially when it will ultimately involve the amount of alimony or child support payments.
Illinois is an equitable division state. A family law attorney who handles complex divorce matters will tell you that the court will look at many factors in order to reach a decision about the family business. In terms of division, the goal is to be as fair as possible to both you and your soon-to-be ex-spouse. So, a range of factors, including valuation issues, could be impactful if the matter of how a business will be divided in a divorce goes to court.