The national divorce rate has hovered around 50 percent for decades, implying that roughly five out of ten marriages will end in divorce. If divorce were easier and faster, that percentage may even be higher since many wealthy individuals delay their divorce in fear of loss of stock options, executive compensation, and ultimately, financial devastation until they can’t take it anymore.
Setting the divorce rate aside, the actual process of divorce involves the valuation of assets and debts, identifying separate vs. marital property, and if a business is involved, the valuation of the business. Often, forensic accountants and financial analysts are necessary to determine the value of the assets contained within the marital estate.
A financial analyst who primarily focuses on business valuation will be interested in:
- A list of the couple’s businesses and business interests.
- A summary of each business interest that is a part of the marital estate.
- The name of the companies.
- A description of each business’ focus.
- The date the businesses were acquired.
- The ownership interest of each spouse.
- The legal structure of all businesses in the marital estate.
- The valuation date, which we explain below.
What is the Valuation Date?
The “valuation date” is critically important in a business valuation. It is the date that is relevant to the business analyst. Why? Because, the valuation date that is selected by the analyst can have a profound effect on the value of the business or on each spouse’s ownership interest for settlement purposes.
In the context of a divorce, the valuation date generally falls into one of the three categories:
- The date the couple got married,
- The date a couple separated, OR
- The date the couple’s divorce is official.
Generally, the valuation date depends on the state where the couple is divorcing. Sometimes, both divorce attorneys will come up with different, relevant valuation dates, which require an analyst to provide an opinion on how much the business is worth based on the different dates.
When the couple’s respective lawyers are offering multiple valuation dates, the analyst should be guided by legal counsel regarding the applicable valuation date in the divorce setting. Often, the date of separation becomes the most relevant “valuation date” for the purpose of divorce negotiations.