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Is your small business up for grabs in your divorce? - Part II

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If you're a regular follower of our blog then you may have read last week's post in which we discussed how to determine whether a business is considered separate or marital property. As we explained in the post, which can be found here, marital property is divided equitably during divorce proceedings. In order to do this with a business, though, it must first go through the valuation process.

What is the valuation process, you may be wondering? Business valuation, as the name suggests, is a process by which value is assigned to a business. In cases of dissolution of marriage, a business that has been labeled marital property will be assessed a value that will then be divided between spouses for the purposes of equitable distribution.

In Maryland, business valuation professionals need to carefully consider two things before making a determination about a business' value. These two things are: the standard value and whether goodwill was a factor.

How is standard value defined in Maryland?

The definition of standard value is not the same from state to state. Here in Maryland, standard value relies on fair market value, which is the expected price for something - in this case a business - in a situation in which both the buyer and seller were willing to take part in the transaction and have agreed to the price.

What role does goodwill have?

This question is a little trickier to answer because Maryland requires the consideration of two forms of goodwill: entity and personal. Both can play a role in how much or how little value is assigned to the business as well as how much each spouse contributed to the business' growth.

Because the business valuation process is so complex, it's a good idea to talk to a lawyer as well as a business valuation professional before undertaking the property division step of the divorce process. With both professionals' help, you will be in a better position to handle this part of the divorce process in a more amicable way.

Sources: The Maryland State Bar Association, "Marital Property and Value," Larry M. Pullen, Oct. 1, 2012

The American Academy of Matrimonial Lawyers, "Divorce Value: Standards of Value for Professional Practices and Closely Held Businesses," Joslin Davis and Loretta C. Biggs, Accessed April 5, 2016

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