When couples have businesses and decide to divorce they are often surprised that the businesses they feel have little to no value actually are quite valuable. They are even more surprised to learn that the business is part of the marital property and must be divided equally between the spouses.
In valuing property, the court has wide discretion. For the purposes of divorce, the value of the business is the net value. The court can use either fair market value or investment value.
Fair market value is “the amount at which property would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts.”
Investment value is “the value of a small business..or professional practice to a specific owner. Unlike the fair market value standard, this standard considers, (1) the specific owner’s expectation of risks, (2) the potential synergy associated with ownership of the subject business, and (3) the specific earnings expectations resulting from the subject ownership.”
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