The value of an accurate business valuation in divorce

| Jun 26, 2020 | Firm News

With a complex Washington divorce, there are many components that factor into a fair property settlement between the spouses. Two facets that might greatly affect the outcome of a divorce are the standard of value and the way the state deals with the issue of personal goodwill.

Here in Washington, a community property state, the standard of value in a divorce is the investment value. Also, personal goodwill is indeed considered to be a marital asset.

What does that even mean?

To better understand the legal meaning of the standard of value, one must parse both real and hypothetical circumstances. Value is derived from determining the current worth of any future benefits from the ownership interest(s) that are generated for those who hold that interest.

Two kinds of value exist

For purposes of divorce cases, there are two standards of value: fair market value and investment value. The former looks at the value of the interest as if the business will be sold. However, the latter goes by the value of the company if it were held by a certain individual and applied as if it were sold or exchanged to its present owner.

What about personal goodwill?

What is your visceral reaction to the mention of a popular brand or household name? That is part of its personal goodwill as defined by the International Glossary of Business Valuation Terms:

[T]hat intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.

Goodwill may be attached to the company itself or to its working owner. Because personal goodwill is considered a marital asset here in Washington, this can have a considerable positive or negative effect on a company when an owner gets a divorce.

What this can mean for your Washington divorce

Business owners who divorce in our state face different challenges than divorcing couples who do not have an ownership interest in a company or business. Working closely with your Auburn family law attorney will enable you to access the resources to accurately value all aspects of your business before attempting to negotiate a property settlement in the divorce.