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In business valuation, what you don't know could hurt you

If you are going through a divorce, the property division process can be one of the most painful steps you need to get through to finalize the split. Any discussion about money has the potential to turn into a fight, as each person is going to be concerned about his or her own financial interests. And the more money there is at stake, the more contentious these fights can be.

To make matters even more complicated, you may also be dealing with some complicated assets that are difficult to value. For instance, if you own or invest in a business, numerous problems can arise when it comes to valuing the business in your divorce.

To begin with, what you earn from a business isn't necessarily how much it is worth. In addition to your income, there can be operating expenses, inventory that has value and money coming into the business that all must be calculated.

Further, business transactions can happen at any time, which can impact a divorce settlement. A company's value can change dramatically in the event of a buyout, merger, new product release or other significant event. This information, if you have it, will need to be disclosed and considered when calculating the value of your stake in a company.

If you try to undervalue a business, minimize your role or stake in the company, or if you fail to disclose information you have about potential changes that could affect the company's value in the future, you could find yourself in hot water.

Recently, for example, a woman filed a lawsuit against her ex-husband claiming he undervalued an investment in their divorce, which cost her approximately $2.75 million. However, for a number of reasons including an expired statute of limitations and lacking evidence, her case was dismissed.

While the woman lost her claim, it should be a strong reminder to our readers that properly valuing a business can have a tremendous impact on a divorce settlement. Even if you don't have millions of dollars on the line, working with an attorney to make sure all assets are accurately evaluated and appraised can be a critical element of your divorce settlement.

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