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The Divorce Encyclopedia
Valuation Process

Term Definition Valuation Process - a systematic procedure employed to provide the answer to a client’s question about real property value.
Application in Divorce In setting the value of an asset, a person should remember that something is worth what someone else will pay for it, and that is its price. In valuing a small business, a seller must accurately appraise the market value of its assets, its earnings and its potential. In general, high-risk businesses should provide greater returns than low-risk enterprises; this means that should cost less. An assessment of risk and return permits a buyer calculate what is termed capitalized earnings, depending upon whether a business has assets but limited cash flow, such as a manufacturing concern, or cash flow but limited assets, such as a consulting company.

In divorce, private companies that are closely held must be appraised by various experts who use different methods to place a value on the business 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.

The problem of valuation and appraisal is made more complicated because one spouse (usually the husband) may be far more emotionally attached to the business than his spouse.

When one spouse had an established business before he or she married, part of the value of the business may be separate property and the remainder marital property.

The terms and conditions of a sale are its structure. For example, a seller may be able to get a higher price if he or she accepts a lower down payment and a longer payout period than a large up-front payment.

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