If the parties in a divorce cannot agree on the value of, for example, a family business or artwork, a judge relies on the testimony of experts.

Valuation should not be confused with assets is done as an adjunct to their distribution, but assigning a value is independent of classification.

Relying solely on the idea of the benefit the owner will receive.

Closely held corporations, single-proprietor businesses, private companies without publicly traded stock must be appraised or valued by various experts who use different methods to place a value on the business. Many fair value, good will, salaries versus distribution of profits, return on capital -- make this calculation difficult and subject to dispute because these appraisals have a measure of subjectivity.

The problem of valuation is often made more explosive because one spouse had an established business when he or she married, but this facet of a divorce relates to the classification of assets.

Although valuation of a business can be very difficult, in general there are two approaches that expert witnesses bring to divorce actions to assess the value of a business. The first is called the total value approach, which separates each asset of the concern and values it separately, and the second is the going concern approach, which treats the business as a complete entity.

In the first, a business is the sum of its parts; in the second, it is a whole greater than the sum of its parts. Both, however, share a common ground, which is the factors gives the court a frame of reference by which to weigh the evaluations of experts enlisted by the divorcing parties.

In the total value approach, the assumption is made that the value of a business is the sum of its accounts receivable, and most commonly deals with goodwill in what is termed the excess earnings method. In this routine, the court computes the difference between actual earnings of the business and the earnings of the "average" business, and then multiplies the difference by a factor of one and five. This calculation is said to capitalize the earnings. In the total value approach, goodwill becomes problematic when it is deemed unrealizable, as is often the case in a single-person operation where the owner’s reputation cannot be transferred.

In the going concern approach, courts can rely on 1) past valuations, particularly those where the owning capitalization of total earnings assumes the value of goodwill as equal to one year of gross earnings.

Valuing a marital business can become further complicated by special situations that require special consideration. These situations, which might cause a discount in the valuation, include: 1) partial ownership, when the owning minority owners’ control of the business; 3) a lack of marketability; 4) lack of voting rights; and 5) "key man," who might leave the business.

In general, the valuation of the real estate commission and other costs are not taken into account unless the sale of the property is reasonably foreseen.

When a couple sell the children are involved, should be mindful of this. Very often the party who keeps the house finds that he or she cannot afford it or simply no longer wants it.

See also Marketability Discount; Fair Value; Fair Market Value; Marital Home.