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Baby you can drive my car!
Yes I'm gonna be a star!
Baby you can drive my car!
And baby I love you! |
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 This month's newsletter is about the closely held business and its role in a divorce. Paul McCartney and all of the Beatles were no stranger to divorce. All of them went through one or more. One of the most challenging parts of a divorce is the case where there are assets that are not easily converted to cash. How do you value those? Our guest writer this month is Mike Benaglio. Mike has been involved in his own restaurants, construction, sales, brokering the sales of business, and countless other avocations. He is a respected valuation expert in the family law community, and he discusses the basics of valuation methodologies, and how valuation is more of an ART than a science. Jimmy Vaught discusses some the issues of valuation in a divorce. Leigh de la Reza just finished her first jury trial (it was SEVEN days long)! She's spending some time with her family. Her column will return next month. |
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| The Ballad of John and Yoko! |
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HELP! I need someone who can tell me what my business is worth!
When I am hired to value a business, I look at many factors like the type of business entity, the ownership, and of course the financial records.
I analyze the financial information and research the specific industry, including the niche the company serves in the market. It is always beneficial to have an opportunity to spend time with the owner and see them in their business element through a site visit. It is also helpful to talk to the major players to gain their perspective about how the business excels and some of it's challenges.
There are three general approaches to valuation: the Asset, Income and Market Approaches. A business that has substantial tangible assets but does not generate consistent substantial income generally has a value based on the assets and liabilities. Think start-ups, low-bid construction companies or real estate holding companies.
Another approach, Income, is used for manufacturing plants or businesses that offer products and/or services. The factors to consider would be the profit margins, the sales history, current trends, and the bottom line. We need to adjust that bottom line for items that are not true business expenses, like the owner's car washes, vacation to the Bahamas or other personal items not necessary to the business.
Personal services, like attorneys, doctors and fabulous business appraisers usually have a certain "value" that is attributable to the skills of the owner. This value or goodwill cannot be reproduced by simply substituting another person with the same credentials or special license. This separation of the personal goodwill is a requirement in the Texas Family Code. This brings up another consideration, some professions prohibit an unlicensed spouse or any unlicensed person from owning the business.
Sometimes a business can be valued using more than one approach. If a company owns its plant, tons of equipment and generates a healthy amount of income, it may be necessary to combine an asset valuation with either an income approach or a market approach.
A business valuation is a major piece of the marital estate, and I draw on my own experience as a business owner, my experiences brokering business sales, having valued thousands of companies and my degree in accounting to make sure to take into account all of the relevant factors to provide the most accurate picture of what the family business is worth.
Mike Benaglio
Email me!
(512) 452-6900
Visit my website!
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Jimmy Vaught |
I say High, you say Low. You say why and I say I don't know. Oh no!
Besides the marital residence and the emotional issues that are inherent in it, a closely held business is often the most contested asset in a divorce. The spouse who works/owns the business wants a low value. The spouse who is not involved in the business is usually quite sure that it is more valuable. It gets even more complicated if the business is owned by more than just the two spouses, as in the case of an extended family entity or the separate property of one of the spouses.
An even bigger problem is when both spouses work side by side in the business. A typical scenario would be one spouse may have the professional training, but the other spouse runs the back office operations. One or both of them may feel that their livelihood is at risk.
From a practical standpoint, getting the financial records from small businesses can be a piece of cake or exceedingly difficult. If they have a CPA, the tax returns are generally easy to get, but if tax returns haven't been filed or if there are questions of accurate record keeping, it can become a nightmare. If there are unpaid tax liabilities, the business is probably a liability.
I work with my clients to understand the valuation process and sometimes have them meet with the valuator to ask questions. If they are not satisfied with the value, there can be feelings of having been shortchanged. No one likes to feel like that, and it might have the unintended consequence of impairing the ability of the parents to effectively coparent their children.
A final caveat: If a client insists on an inflated value for the business, it can have the unintended consequence that they might end up receiving the business at the inflated value.
Jimmy Vaught
Email me!
(512) 342-9980
Visit my website
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FUNKY HAIRSTYLES THAT EVOLVED AFTER THEIR SIGNATURE STYLE |
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Paul McCartney
There's no other way to say it. He has a mullet.
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John Lennon
Can't see the hair, but no one would ever wear this hat unless the hair was worse.
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Ringo Starr
He has that Craig Ferguson look going on!
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George Harrison This look just screams NO FUN! |
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We love doing the newletter, and we appreciate your comments. If you have ideas or suggestions, please reply to this email. And don't have a bad hair day. Elvis NEVER did!
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Sincerely,
Jimmy Vaught
Vaught Law Firm, P.C.
512-342-9980
Leigh de la Reza
The Law Office of Leigh de la Reza, P.C.
512-329-5020
Email Leigh |
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 BABY, YOU CAN DRIVE MY CAR BUT DON'T STEP ON MY BLUE SUEDE SHOES!! THANK YOU VERY MUCH. | | |
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