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Business valuation and how it complicates property division

If you ask anyone who has gone through a divorce about what the most difficult part of the process was, most people will reply: property division. That's because, even though our state has tried to simplify property division, there are still things that can complicate the process considerably.

One thing that can make things particularly complex is the valuation of a closely held business for the purposes of property division. Texas judges have to take a number of things into consideration, including some things that are not as easily quantified. Let's take a closer look.

In community property states such as Texas, any money earned or property acquired during the course of the marriage is equally distributed between spouses when dividing assets. The same is often true for businesses as well. To divide the business evenly though, judges first have to take two things into consideration: tangible and intangible assets.

Tangible assets are relatively easy to calculate because they are based on physical parts of the business such as current assets or the building and land the business resides in or on. Intangible assets, however, can be far trickier to calculate. In most cases, judges rely on "goodwill" to determine a majority of the intangible assets' value.

The goodwill of a business is often defined as the "characteristics of a business or individual that cause[s] customers to return to that business or person." Determining goodwill can be a time-consuming process though because an appraiser needs to look over the business' records and take into consideration a person's personal goodwill before making a valuation.

Because of the complexity surrounding this part of property division, legal counsel may be necessary, especially considering the assets that could be at stake. It's something we hope our readers will not over look when it comes to their own divorce.

Source: Divorcemag.com, "Proper Evaluation of "Goodwill" of a Business During Divorce," Bruce Richman, Accessed Sept. 5, 2014

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