Attorney
When can have a bigger impact than what in so many circumstances. When to sell a stock, when to list a house, when to expand a business… the when changes the outcome as much as the decision itself.
In the past, we’ve talked about timing your divorce filing and how the time you acquire an asset or debt can turn it into marital property. Today we’re going to get into the financial weeds and talk about how the date used to value a business can matter just as much as how it’s valued.
As a former business owner, Attorney Bob Matteucci knows the value of a business on X date is something that can and should be debated during divorce. But he understands that “X date” is also up for debate. And that X is just one point in time, which must be viewed in a broader context.
New Mexico Doesn’t Set the Date for You
There are many aspects of divorce that are explicitly spelled out in the New Mexico state statutes. Child support payments, for example, are governed by a formula and worksheet that courts do not like to deviate from.
But there are other areas where the statutes are silent. The timing and technique used to value a business during divorce is one of those areas. Divorcing couples have broad discretion to select whatever mechanism of valuation, and specific date of valuation, is reasonable given the specific facts of the case.
A lot of family law attorneys will spend time squabbling over the valuation process but completely ignore the impact of timing. But the timing of a valuation often matters a great deal, and is worth negotiating.
Why the Date Changes the Outcome
A business’s value isn’t a fixed number. It moves. And depending on which direction it’s moving, the valuation date can meaningfully shift who benefits from that movement.
So, you have to decide when to value the business. You might choose:
- The date a couple started living separately
- The date the divorce papers were filed
- The date of the divorce
- End of a specific calendar year
- End of a specific fiscal year
Or you could calculate an average value across a defined period.
There’s no one-size-fits-all solution, so this is an issue that should be discussed at the negotiating table so the end result is fair.
Bob Matteucci has a head for numbers, so he takes a broad view of this issue. He looks beyond the value of the company on different days, and thinks about larger trends and how those are tied to the state of the owner’s relationship.
Consider a couple where one spouse started a consulting firm. At the date of separation, the business is just starting out, so it’s only worth a modest amount. But let’s say the owner is really hustling, so by the time the divorce is finalized eighteen months later, new contracts and hires have nearly doubled its value. If the valuation date is set at separation, the non-owner spouse’s share is calculated on the smaller, earlier number, and the owner spouse keeps the benefit of everything built afterward. If the valuation date is set at the time of the divorce decree instead, that growth gets factored into the community estate, and the non-owner spouse’s share reflects the business as it exists today, not as it existed a year and a half ago.
Whether that later date is fair often turns on why the business grew. Growth tied at all to the marriage (say the spouse who founded the business is working a ton and not spending as much time with the couple’s kids) should probably be considered community property even if the couple has already decided to split or even filed for divorce by the time the company starts to take off. Valuing it later is more fair. But if the growth is related to shifting demand, an acquisition, or something else that’s unrelated to the marriage, that growth could be considered separate property and an earlier valuation date makes sense.
The same logic runs in reverse for a declining business. If a business is losing value, an earlier valuation date can lock in a higher number that no longer reflects reality, while a later date captures the loss. The owner spouse and non-owner spouse have opposite incentives depending on which direction the business is heading.
Serving Families with Dignity & Compassion
Just as timing shapes the outcome when selling a business, closing a real estate deal, or exercising a stock option, it can shape the outcome of a divorce settlement. If the division of business interests is part of your divorce, the point in time the business is valued is just as important as the valuation method.
This is yet another aspect of divorce where financial fluency matters as much as legal strategy. Bob Matteucci is a former business owner who holds an MBA in addition to his law degree, so he approaches valuation date questions a bit differently than other family law attorneys in the Albuquerque area. He knows getting the timing right isn’t a technicality, it’s an important part of the negotiation process.
Please contact Matteucci Family Law to set up a meeting with Bob to discuss your case.