Business Valuation in Divorce

Business valuation is a subject near and dear to my heart. On a professional level, in order for me to help my clients who are independent business owners, it is important for me to understand the court’s position on how to place a value on business interests. On a personal level, being an independent business owner myself, I find the issue of business valuation fascinating (and a bit frustrating).

Within the past thirty years, the courts of our state have offered a great deal of guidance on the issue of business valuation. However, until a recent 2015 South Carolina Supreme Court decision in Moore v. Moore, family court practitioners argued over the meaning of the courts’ guidance, which often led to inconsistent results.

Thanks to its opinion in Moore v. Moore, the South Carolina Supreme Court gives a family court practitioner clearer guidelines on how it determines the value of a business. In Moore, the Court explains that when valuing business interests for the purpose of equitable distribution, a court must determine the fair market value of the corporate property as an established and going business by determining (1) the business’ net asset value, (2) the fair market value for its stock, and (3) earnings or investment value. The Court further clarified the issue of whether to include goodwill in the value of the business, distinguishing between entity goodwill and personal goodwill. Where enterprise goodwill (the ability of a business to attract and hold business separate from its owner) exists, the value of the enterprise goodwill is subject to equitable distribution. Where personal goodwill (goodwill associated with the owner’s special skills or relationships with clients) exists, the value of the personal goodwill is not subject to equitable distribution.