FREQUENTLY ASKED QUESTIONS

Why is a business valuation needed in a divorce?

For many couples, a business is their most valuable asset. The court requires a defensible business valuation to determine its fair market value, which then becomes a key part of the marital estate to be divided. Without a valuation, it’s impossible to accurately and fairly divide the couple’s assets. It’s an essential step in ensuring a just and equitable settlement.

Whose value is the business valuation for?

The valuation is for the court and both parties in the divorce. The final report is a professional, third-party opinion of the business’s worth. The goal is to provide a neutral and well-documented analysis that both sides can use to reach an agreement or, if necessary, that the court can use to make a decision.

When is a business valuation needed for estate planning?

A business valuation is crucial for estate planning, especially if the business is a significant part of your net worth. It helps you understand the value of your assets so you can structure your will, trusts, and other estate documents properly. A valuation is also required by the IRS when a business is transferred or gifted, and the value exceeds a certain threshold.

What is a “step-up in basis” and how does it relate to a business valuation?

“Step-up in basis” is an adjustment to the value of an inherited asset for tax purposes. When you inherit an asset, its cost basis is “stepped up” to its fair market value on the date of the person’s death. A professional business valuation determines that fair market value. This is a critical step because it can significantly reduce the capital gains taxes owed if the business is sold later.

How do I value my small business for a sale?

While a business valuation can be done in many ways, for exit planning, it’s typically based on what a hypothetical buyer would pay for it. The most common valuation methods for small, profitable companies involve analyzing cash flow, recent sales of similar businesses, and the company’s assets. At Soundpoint Valuations, we provide an in-depth analysis that goes beyond simple rules of thumb to give you a defensible value for your company.

Why shouldn’t I use an online business valuation calculator?

Online calculators can give you a rough estimate, but they can’t account for the unique factors that truly drive a business’s value, such as a strong brand, key customer relationships, or a solid team. A professional business valuation normalizes your company’s financial statements, analyzes its market position, and considers the risks and opportunities that a buyer would consider. This ensures you get a fair and accurate valuation that you can confidently use in a negotiation.

How is a valuation different from an appraisal?

While the terms are often used interchangeably, in the context of business, a valuation is a more comprehensive process. A valuation determines the overall worth of the business as a going concern, including its intangible assets like goodwill and brand reputation. An appraisal typically refers to the process of determining the value of a single, tangible asset, such as a piece of equipment or real estate.

How long does a business valuation take?

The timeline for a business valuation can vary based on the complexity of the company and the availability of financial documents. Typically, a standard valuation can be completed in 4 to 6 weeks after receipt of all necessary documentation. We’ll provide a clear timeline upfront so you know what to expect. We can typically work to your timelines so if you need something sooner – just ask!

How much does a business valuation cost?

The cost of a business valuation will depend on the size and complexity of the business and the purpose of the valuation.  Here at Soundpoint, we are a highly experienced team with low overhead and efficient processes built up over nearly two decades of experience – which means you get top tier quality at a great value. 

What is the process for a business valuation?

Our process is designed to be as clear and efficient as possible:

  1. Initial Consultation: We’ll start with a free, confidential conversation to understand your needs and the specifics of your business.
  2. Engagement & Document Request: We’ll provide an estimate, engagement letter and send you a detailed list of the documents we need.
  3. Analysis & Research: We will meticulously analyze your financial data and perform market research to find comparable businesses and transactions.
  4. Clarifications: After the initial review of data and throughout the process we’ll confirm our understanding and dig deeper where needed.
  5. Final Report: Once everything is finalized, we’ll issue the final valuation report, which you can use for your intended purpose.

What information do you need to start a business valuation?

To begin, we’ll need basic information about your business, such as its legal name, location, and a description of its operations. Once we’re engaged, we’ll provide a comprehensive checklist of documents, which typically includes:

  • Five years of financial statements (e.g., balance sheets, income statements)
  • Business and personal tax returns
  • Details on your company’s ownership structure
  • Information on key employees and subcontractors
  • A list of tangible assets and debts

What is forensic accounting in a divorce?

Forensic accounting is a specialized type of accounting that looks for unreported or hidden assets and income, identifies how separate and community funds were spent, and provides a clear, documented financial picture of the marital estate. This is particularly important when one or both parties own a business or have complex financial holdings.

How are financial assets valued and allocated in a divorce?

The goal is to determine the current present value of every financial asset in the marital estate. This includes everything from the obvious (bank accounts, home equity) to the complex (businesses, pensions, restricted stock units (RSUs), and incentive stock options (ISOs)).

Once we have a value for each asset, we determine how to allocate it between community and separate property. This process often requires tracing to identify which funds were used to acquire, improve, or contribute to an asset over time. For example, we may need to analyze bank statements and brokerage records to determine if a pre-marriage investment or an inheritance was used to purchase a community asset. This detailed forensic work ensures a fair division of the marital estate.

How do you determine if an asset is community or separate property in a divorce?

 In community property states like California and Washington, assets and debts are categorized based on when and how they were acquired. Generally, anything acquired during the marriage is considered community property and subject to division. Anything owned before the marriage or received as a gift or inheritance is considered separate property. However, when separate and community funds are mixed, a process called tracing is used to determine the source of the funds and their proper classification.

Is a business owner’s salary double-counted in a divorce?

This is a very common and important question. When valuing a business, we analyze its income after accounting for a fair market salary for the owner’s operational duties. We do this to avoid double-counting. If the same income is used both to determine the value of the business (as a divisible asset) and to calculate spousal support, it creates an unfair result where the non-owning spouse benefits twice from the same stream of earnings.

What is a “due reimbursement” claim in a divorce?

 A due reimbursement claim is a request for a spouse or the community to be repaid for funds that were used for a purpose other than their intended classification. For example, if community funds were used to pay for a separate property asset, the community would be due reimbursement for that amount. Our forensic accounting reports are structured to clearly identify and document these claims.

How are pensions valued in a divorce?

Pensions are considered a marital asset if they were earned during the marriage. Valuing a pension involves calculating its present-day value, which is the amount of money a spouse would need today to equal the value of the future pension payments. This is a complex calculation that factors in the spouse’s life expectancy, future earnings, and other assumptions. It must also take into account the portion of the pension earned during marriage.

How are RSUs (Restricted Stock Units) or ISOs (Incentive Stock Options) valued in a divorce?

The valuation of RSUs and ISOs in a divorce depends on when they were granted, when they vest, and when they are exercised. Generally, the portion of these assets granted during the marriage is considered a marital asset and is subject to division. We use a specialized formula to determine the community property interest in these complex equity awards.

How long does a forensic accounting engagement take?

The timeline for divorce analytics and forensic accounting can vary based on the complexity of the case and the availability of financial documents. A pension can be valued in less than a week, typical tracings are 2-4 weeks and complex tracings with many accounts over a long period can take 1-2 months. We’ll provide a clear timeline upfront so you know what to expect. We can typically work to your timelines so if you need something sooner – just ask!

How much does forensic accounting cost?

The cost will depend on the size and complexity of the case.  After an initial complementary session we can provide an estimate of the cost.  Here at Soundpoint, we are a highly experienced team with low overhead and efficient processes built up over nearly two decades of experience – which means you get top tier quality at a great value. 

What is the process for forensic accounting?

Our process is designed to be as clear and efficient as possible:

  1. Initial Consultation: We’ll start with a free, confidential conversation to understand your needs and the specifics of your case.
  2. Engagement & Document Request: We’ll provide an estimate, engagement letter and send you a detailed list of the documents we need.
  3. Clarifications: After the initial review of data and throughout the process we’ll confirm our understanding and dig deeper where needed.
  4. Final Report: Once everything is finalized, we’ll issue the final report, which you can use for your intended purpose.

What information do you need to start a divorce analytics engagement?

To begin, we’ll need basic information about your case including your date of marriage, date of separation, and names of you and your spouse. Once we’re engaged, we’ll provide a comprehensive checklist of documents, which typically includes:

  • For traced accounts:  each individual statement from just prior to either date of marriage or date of separation (depending on if pre-marriage separate funds remain and need to be traced)
  • RSU/ISO’s: each grant statement showing grant number/identifier, date, number of shares and vesting schedule and each brokerage statement where vested/exercised shares were deposited.
  • Pensions: benefit statement and our pension data request form.
  • Income verification: last 3-5 years of personal tax returns and W-2’s and a recent paystub