Property division is a significant part of the divorce process for most couples. The process requires many couples to evaluate their family business at the early stages. Business valuation can help the couple decide how to divide and distribute the business. However, when the business is a private practice, property division can contain an additional layer of complexity.
There are numerous methods that can help a divorcing couple determine the value of a private practice, including methods that consider adjusted earnings, earnings including the principal’s compensation and gross revenue. Financial experts and legal professionals can provide guidance regarding what method might work best for your practice or what combination of methods could be used to reach an agreed-upon valuation.
Is “goodwill” a factor?
While goodwill is an intangible concept, it is tied to numerous tangible factors. This subjective and variable asset can form the basis of numerous heated debates during the divorce and property division processes. In a real estate transaction, realtors can examine comparable sales. When valuing a business, experts can monetize the company’s inventory, property and trademarks. When valuing goodwill in a private practice, however, individuals must carefully examine elements such as:
- Benefits earned from ongoing marketing efforts
- Business-owned copyrights, trademarks and other intellectual property
- Brand loyalty
- Staff experience level
Business valuation can be a nebulous concept as determining a company’s true value is not an exact science. Various factors such as market trends, client base, regional demographics and employee attrition can all contribute to the value of a business. It is wise to look at several methods of business valuation to reach a compromise.
The divorce process can be complicated for numerous reasons. When a couple has amassed complex assets including a private practice, property and debt division can become challenging. From evaluating the future earning potential of a private practice to the value of the practice’s goodwill, it is wise to gain a thorough understanding of the valuation before negotiating the property division.