Business and Professional Valuations Attorney in Coeur d’Alene
What is a Business and Professional Valuation?
When couples are divorcing, if one of the spouses is a professional service provider, a professional business valuation may be necessary to ensure a fair division of assets. Having a Coeur d’Alene business and professional valuations attorney by your side can make the entire process easier and more understandable.
When a professional service provider, such as an accountant, a doctor, or a lawyer, divorces, the ownership interest of that spouse in the business or practice, must be valued in order to equitably divide marital assets. In some cases, a business or professional valuation is done to determine the value of a business one spouse had prior to the marriage, then to establish how much that business appreciated during the marriage.
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Valuing a professional service has many unique challenges as compared to valuing a more “conventional” company. A professional practice valuation includes “goodwill,” which is something conventional companies do not. Goodwill refers to the “advantage or benefit acquired by an establishment which goes far beyond the value of property, funds, or capital stock.
To provide a credible valuation, financial statements for the last five years will be necessary, as well as interim financial statements and forecasts or projections. Other documents requested include information that describes the company’s services, products, operations, competitors, suppliers, and customers. Consultant reports and business planning materials also help value a professional business.
Why Choose a Coeur d’Alene Business and Professional Valuation Attorney from Crouse Erickson?
Because a business and professional valuation can be complex, it is important that you are represented by Crouse Erickson Family Law Attorneys. We have 30 years of firm experience in all issues related to family law, including business and professional valuation. We are a client-centric family law firm; we want our clients to always be glad they worked with us. At Crouse Erickson, we do not just help you navigate technical legal processes like business and professional valuations, we aim much higher. With an office located in Coeur d’Alene, our firm serves all of Kootenai County.
Our legal team goes above and beyond in customer satisfaction, providing unparalleled service. From building solid relationships with our clients to providing intense case preparation we are in your corner and by your side at every turn. We will help you navigate life-altering processes like divorce, with as little stress and hassle as possible. We want you to be able to face your future with confidence and we will do everything in our power to help you get there.
What Is Goodwill?
Goodwill can be separated into personal goodwill and enterprise goodwill. Personal goodwill is sometimes known as professional, individual, or celebrity goodwill, and relates to an individual person. Personal goodwill is attributable to an individual as opposed to an entity, while enterprise goodwill is associated with the entity (the business) as opposed to the person. Personal goodwill includes:
- The personal relationships the individual has with employees, suppliers, customers, and even competitors and how these relationships enhance the earning power of the company. As an example, if a specific doctor leaves a business with a group of doctors, would key patients go with that doctor? Would the business suffer? Would some employees leave the group? The answer to those questions helps determine personal goodwill.
- The skills of the individual, the intellect of the individuals, or both of those things together can also determine the success or failure of a business, therefore, the value. If there is a highly skilled surgeon in the doctor group—one that patients will wait to see—then that surgeon contributes significantly to the value of the group.
- The knowledge of the individual is similar to skills and is defined as the unique possession of information.
- The reputation of a company may be derived in part—or wholly—from the personal goodwill of a single individual.
Personal goodwill attaches to the personal efforts of an individual, therefore is considered non-transferable. Goodwill that is transferable is enterprise goodwill. States vary considerably in whether personal or enterprise goodwill is allowed to be considered in a business valuation. For Idaho, the question of whether personal goodwill can be considered during a business valuation cannot be answered by a simple yes or no, rather the answer is, “it’s complicated.”
The Idaho Supreme Court considered valuation of professional practice goodwill in marital dissolution cases in 2007, deciding that personal goodwill could be used. The husband in the case appealed, urging the court to adopt the majority rule on the books in 28 states which distinguish between enterprise and personal goodwill in divorce. The court denied the request, deciding that personal goodwill in private practices is divisible property.
What are the Three Types of Professional Valuations?
There are three primary types of professional valuations. The first is the income approach that weighs the expected benefits of investing in the company against the required return for assuming the approximate risk associated with the business. This approach takes into account working capital needs, capital expenditures, profits, and changes in revenues. Under the income approach, an expert capitalizes indicated earnings at a reasonable ROI based on current interest rates and relative risk.
The market approach values a company based on similar publicly traded companies, as well as the sale or merger transactions of comparable companies. Finally, the asset approach measures the fair market value of the assets of a company, minus its liabilities. The asset approach is often used for underperforming companies and may not be valid for a company with intangible assets and meaningful profits. Under the asset approach, an expert will appraise all the tangible and intangible underlying assets, adjusting for existing liabilities.
The market approach can be used for a solo professional practice in certain cases; many states treat the market approach as a possible approach for valuing a professional practice, along with its goodwill. There is no single best approach to valuing a professional practice, therefore, in some instances, a mixture of these methods may be used.
Are Business and Professional Valuations Necessary in All Divorces?
When your spouse’s attorney notifies you that a business valuation by a forensic accountant is at hand, you may be anxious about the results. The thought of having an accountant, hired by your spouse, crawling through your business financials can cause anger as well.
If you are on the other side, you may want a business valuation because you think your spouse may be lying about business income, attempting to undervalue the business, or writing off personal expenses using the business. Talking to your attorney about a business valuation can significantly ease your fears regarding the process. Business valuations in divorce cases are practically unavoidable when one or both spouses are professional business owners.
Will the Business Valuation Be Fair to the Business Owner?
A non-business owner spouse wonders if the business valuation process will be fair to them and whether the business owner spouse will attempt to artificially lower the value of the business. In fact, the valuation process is generally efficient and fair during a divorce. In certain cases, the process can be greatly simplified by stating that the value of the business is what a buyer who is not in a hurry to buy will pay for the business and what a seller who is not in a hurry to sell, would accept for the company. In most cases, however, it is much more complex than that.
Each approach to valuing a business will essentially look at the profit and loss statement of the business, the goodwill of the business, and the tangible and intangible assets of the business. Profits are what remain when business expenses are subtracted from business revenues. Many self-employed business owners may sometimes deduct business expenses that are not strictly deductible, by IRS standards. Those essentially non-deductible expenses would have to be “add- backs,” removed from the expense column. Add-backs will increase the profitability of the business by increasing the business owner’s income.
Do I Need an Attorney to Help Protect My Business During a Divorce?
There are essentially three approaches to a business valuation during a divorce. The first is that a couple may attempt to determine the value of the business on their own. This is generally not recommended and can be extremely bad for one or the other of the spouses. The second approach is to hire a joint forensic accountant who will value the business. The third option is for each spouse to hire their own forensic accountant. While it will certainly cost more, the third approach is probably the best, particularly when there are questions regarding the value of the business.
The forensic accountants are not at odds with one another, rather they each obtain the same information to determine the value of the business. Even so, there is both a science and an art to valuing a business, therefore there may be some disagreement. If there is disagreement, the forensic accountants will work together toward a compromise. So, to answer the question of whether you need an attorney to protect your interests during a business valuation, yes, you absolutely do. Your attorney will make sure everything stays on the up and up and that the business valuation is completely fair and accurate.
How Can a Coeur d’Alene Business Valuation Attorney from Crouse Erickson Help Me?
At Crouse Erickson Family Law Attorneys, we are prepared for anything and everything that could possibly come up in your divorce or other family law issue. David J. Crouse has extensive experience in business valuation and professional practice cases, backed by a team of highly qualified professionals. Few attorneys in the region have similar experience in representation of successful, high net worth, professionals. David’s recent, successful representation includes Eastern Washington-area doctors, dentists, veterinarians, lawyers, judges, accountants, chiropractors, small business owners, and those holding significant corporate interests. We firmly believe that the level of time and effort we put into your case clearly shows in the outcome. We have worked with thousands of clients, helping them have a successful resolution to many types of family law problems. With an office located in Coeur d’Alene, our firm serves all of Kootenai County. If you are considering divorce, or have other family law issues, we want to help you through this difficult time. Contact Crouse Erickson Family Law Attorneys today.