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The Divorce Encyclopedia
Private Company

Term Definition Private Company - any business that is not publicly traded.
Application in Divorce Also called a closely held corporation, private companies often include professional corporations, such as the practice of a lawyer or a doctor. They may be a single proprietorship, a partnership, a corporation where the stock is publicly traded.

In a divorce, reaching an agreement on the value of these entities is often very difficult because one spouse (usually the husband) may be far more emotionally attached to the business than the other, and he may be far more threatened. A man who has spent his life building a business may feel more toward it than the wife he is divorcing, and because both parties this, it can be an Achilles heel for him and a weapon for her.

In some cases, part of the value of the business may be separate property and the remainder marital property, as in the case where one spouse had an established business when he or she married. One veteran divorce lawyer says of the complexities of these valuations, "You cannot approach this issue yourself."

In divorce, these entities must be appraised by various experts who use different methods to place a value on the corporation for purposes of marital distribution. Many factors -- including fair market value versus fair value, "good will," salaries versus distribution of profits, return on capital -- make this calculation difficult and subject to dispute in divorce actions.

Typically, the value of a business, private and public, comes from 1) its assets, 2) its real earnings and 3) its risk and desirability.

Unlike ownership of public traded corporations, where a party owns stock, ownership of a private company lends itself the hiding of assets. For this reason, forensic accountants often are enlisted to appraise these entities.

See Fair Market Value; Fair Value; Good Will; Closely Held Corporation.

See also Marketability Discount; Minority Discount.

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