Business Valuation in Divorce
In divorce proceedings, assigning a value to a private business interest (whether owned by husband or wife) often leads to large disagreements when dividing property. Publicly traded interests (e.g., publicly traded stocks) are easy because those values are readily available. Private interests, however, are much more difficult because small businesses can be more economically volatie and the financial condition of the company is kept private. What often exacerbates the problem is that a business interest can constitute a bulk of the parties’ net worth and/or source of income, thereby fueling the incentive to fight.
To combat this uncertainty, it is usually necessary to have an expert witness discuss the valuation of a business at trial. The purpose of a business valuation is to determine fair market value for the purpose of the applicaiton of the equital distribution rules to arrive at a fair property division. Thill v. Thill, 26 S.W.3d 199, 203 (Mo. Ct. App. 2000). There are numerous valuation methodologies: (1) earnings approach, (2) liquidation/underlying asset approach and (3) comparable sale approach. Wood v. Wood, 361 S.W.3d 36, 39 (Mo. Ct. App. 2011).
Unsurprisingly, there is usually competing testimony valuing a business at completely different values. When this happens, the court must act within its discretion and ferret through the conflicting evidence to arrive at what it considers to be an appropriate value. The court is prohibited from entering a valuation not supported by any evidence at trial. Brennan v. Brennan, 955 S.W.2d 779, 783 (Mo. Ct. App. 1997).