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Business Valuations and Divorce During Pandemic

Question: I am in the midst of my divorce and my business and/or professional practice is being valued. How, or, will the dramatic changes happening now be considered?

There has never been a more challenging time for a valuation expert to render a supportable opinion about the value of a business or professional practice. The standard that governs a judge’s decision about the date to be used in valuing a business is whether the result is fair. With the current economic upheaval, judges will likely tend to choose valuation dates that allow the opportunity to consider the impact of the expected downturn, because that would be fairer than using some date in the past. If the valuation expert is now using some date in the past, efforts should be made to change it.

Experts project economic results based on their expectations as of the valuation date and what is foreseeable or reasonably foreseeable. There will be less – or even little or no data – to guide them as to the future expectations. The information they will have could be more or less robust dependent on the industry. For those in the position of “in spouse” which is the spouse who is going to have the business awarded to him or her, the risk of being saddled with an obligation tied to an inflated valuation is substantial. Better outcomes will likely be achieved by delaying the process until more information is known about the future performance of that business.

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