How Courts Value Businesses When Dividing Property
When a couple gets divorced, dividing up their property and assets can be complicated. New Jersey is an equitable distribution state. This means that a judge will determine what is fair or equitable in dividing up property, instead of splitting the property in half. If one or both spouses own a business or have a business interest, a judge will need to determine the value of the business in order to equitably divide that asset.
New Jersey courts have held that the value of a business for property division purposes should be its fair value, which is different than the fair market value. The fair market value is the amount for which the business could be sold to a willing buyer and a willing seller. In contrast, fair value is the amount the business owner or shareholder could be fairly compensated for the business, which may or may not be the same as the fair market value. Fair value is basically the same as fair market value without any marketability or minority discounts. The reason for not including these discounts is that the business owner or shareholder might not be interested in selling the business or business interest.
Take, for example, a closely held business that has only a few shareholders and little market for the stock. Such a business has much less value to an outsider than to a shareholder who wants to keep the business. Thus, the fair value to the shareholder is greater than its fair market value.
It is important to keep in mind that even though the business must be valued does not mean that it needs to be sold. The purpose of determining its value is simply to help the courts equitably divide the property.
Another thing to keep in mind is that couples getting divorced often use an expert called a business appraiser to help determine the fair value of the business. This expert is hired by either one or both spouses to render an opinion for the judge about what the business is worth.
If you are getting divorced and have questions about how equitable division works, you may find it helpful to speak with an experienced family law attorney.