Divorcing couples are encouraged to enter into an agreement regarding distribution of property, but a Michigan court will make a decision if the parties can’t compromise. According to the law, assets will be categorized into marital and non-marital property, and the marital property is distributed equitably between the two spouses. The division of such assets as real estate, cars, bank and retirement accounts, and other personal property is relatively straightforward; however, ownership interests in a business are more complex due to their unique nature. Determining a value, including the value of goodwill, is critical. A Michigan divorce attorney can help you understand how the law treats ownership interests and assist with protecting your investment.
Valuation Methods
Financial experts employ different methods to determine the value of a business, because there are so many elements to consider. Generally, there are three approaches to making an assessment:
- Book Value: As the name suggests, the book value method uses the financial records of the business to determine its worth. The calculation starts with a list of the current value of assets, minus the depreciation of the property over time. While it may be the simplest method, book value does not take into account assets that don’t have a readily ascertainable value, such as the contribution of an owner’s personality and expertise.
- Market Value: This method involves looking at purchase transactions of similarly situated businesses to see what a buyer would pay for the enterprise on the open market.
- Going Concern Value: This approach presumes, for purposes of valuation, that there are no changes in the business; it continues to operate into the foreseeable future, earning profit in the ensuing years. Of course, if there are factors that conflict with the presumption, they will be considered as well as a possible discount as lack of control. The value includes the liquidation value of the company’s tangible assets and the present value of intangible assets. These are worked into what a buyer would pay for the business. The going concern approach typically results in the highest valuation of a business.
Valuating Goodwill
The name and brand of a company has value to its owners, and this goodwill contributes to the worth of a company; as such, it also weighs into the distribution of property in a divorce matter. When goodwill is a direct result of the labor investment and professional contribution of one spouse, valuation is complicated. The Market and Going Concern methods of business valuation both incorporate goodwill, but Book Value does not.
Discuss Your Business Interests with a Michigan Divorce Lawyer
Distribution of business ownership interests is quite different from other real and personal property under Michigan divorce law. The method of placing a value on the asset is critical, and there are special considerations when a company’s goodwill and reputation are at stake. If you are a stakeholder in a business and will be addressing your interests in a divorce case, it’s critical to consult with an experienced lawyer to ensure protection of your investment. For more information on business interests and other types of assets under Michigan law, please contact the Bloomfield Hills, MI offices of attorney Michael A. Robbins to schedule a consultation.