Business Valuation in the Mediation Process

Business Valuation in the Mediation Process by Sandy Balick

{3:36 minutes to read} This is a second installment on the subject of business valuation to assist divorcing spouses in the property settlement process.

It’s common for divorcing spouses to engage in asset trading (a court-ordered distributive award is essentially such a tradeoff). To be a good trader a spouse should be equipped with a reasonably informed idea of an asset’s value.

Since the parties in mediation do not have to provide expert testimony (often conflicting) to enable a court to make an award, more and frequently less expensive valuation options may be available.

The valuation approach should be scaled to the size and sophistication of the business. For example, parties are free to engage a common valuation expert, sharing the cost of the effort. The parties might also utilize an accountant to establish value. While formal business valuations might be beyond a CPA’s usual skill set, CPAs may nonetheless be very helpful in providing figures and insights for discussion and for examining the unique issues presented by a particular business. This is especially the case where the accountant has been associated with the business for a long time.

Parties are also free to come up with their own solutions, which places a premium on full disclosure of assets (which is always encouraged in mediation). Broad economic attributes of the business should be considered, including:

  • Growth potential;
  • Sales/revenue histories;
  • Debt;
  • Lease obligations;
  • Seasonal business factors;
  • Marketability (would there be willing buyers for this business and what offers might it attract if put up for sale); and
  • The business’s susceptibility to commodity value fluctuations, etc.

These are just some of the factors that may warrant consideration.

Parties should be concerned with the potential for both hidden values in assets and for near-term liabilities to develop, such as the necessity to refinance a loan, pay off a balloon mortgage or note, or the expiration of a lease or license critical to the business.

Though they have no obligation to do so, the 14 broad statutory considerations employed by the courts (see my last installment) may help the parties in shaping voluntary discussions on asset settlement.

So-called “rules of thumb” are used commercially to help establish the value of certain businesses, and while this methodology will not constitute acceptable proof in New York’s courts, its simplicity may provide mediating couples with helpful notions of value that may be augmented by other common-sense factors. (A good public library will have business valuation materials with rules of thumb described by line of business. Online sources may also be helpful.)

The untitled spouse may find it helpful to consult an attorney on the finer points of business interest distribution throughout the negotiating process. This consultation could also be useful regarding typical percentage awards. (It is not uncommon for the untitled spouse to receive less than 50% of the value of a business interest.)

Sanford (Sandy) Balick, Attorney & Mediator, NY Sandy Balick signature
Sanford E. Balick, Esq.
Founder & Principal Mediator
Consensus Point Mediation, LLC.

Phone: (646) 340-3434
Email: ConsensusPointLLC@gmail.com
www.ConsensusPointMediation.com
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