When business partners or shareholders decide to part ways, disputes can arise over the value of the business. Determining a fair valuation of the company is frequently the most contentious issue in a New York business divorce, as it directly impacts each owner’s share, potential payout, and long-term financial security. While a skilled business litigation attorney can best advise you, it’s essential to understand the remedies and options that may be available in a business valuation dispute to ensure your financial interests are protected.
Reasons for Valuation Disputes in Business Divorces
There are a variety of reasons valuation disputes can arise in business divorces. Because different valuation methods can produce vastly different results, one owner may prefer an income-based approach, while another may advocate for an asset-based or market-based method. These differing approaches can significantly impact the company’s final valuation — and lead to disagreements between co-owners about the company’s true worth.
Other valuation disputes can arise from conflicts over whether intangible assets (such as goodwill) should be included in a valuation, differing views on future growth projections, or disputes about the appropriate valuation date due to changing market conditions. In some business divorces, one owner might accuse the other of actions that artificially inflate or depress the company’s value, such as excessive compensation or poor financial management. Disagreements can also occur when the parties question the accuracy of the company’s financial statements.
Options and Remedies for Resolving Business Valuation Disputes
Valuation disputes in business divorces are often resolved through negotiation, where co-owners agree on a buyout price. If negotiation fails, mediation or arbitration may be used to help the parties find a mutually acceptable solution. However, if these options fail, it may be necessary to seek a judicial remedy and allow the court to determine the company’s fair value.
In addition to using alternative dispute resolution to reach a settlement or resolving a business valuation dispute in court, business owners may consider the following flexible solutions:
- Structured buyouts: While a structured buyout does not resolve a business valuation dispute on its own, this option can provide a framework that makes compromise possible. When co-owners cannot immediately agree on the exact value of the company, they can negotiate a buyout schedule that reflects a range of reasonable valuations, with payments tied to milestones, profits, or agreed-upon terms. This can allow the parties to move forward and turn a contested valuation into a mutually acceptable solution while the business continues to operate.
- Stock or membership interest swaps: Exchanging shares or membership interests can help resolve a business valuation dispute by allowing the parties to divide ownership in a way that reflects each person’s perceived value of the business. Rather than agree on a precise dollar amount, the parties can reallocate equity or exchange interests in different entities or assets of the business.
- Installment agreements: An installment agreement can allow a departing owner to receive payments for their interest over an agreed period of time. This arrangement can help bridge the gap between competing valuations and make it easier for the parties to reach a compromise. When the purchasing owner does not have to pay the entire buyout amount upfront, they may be more willing to accept a higher valuation than they could otherwise afford in a lump-sum payment. Reducing the immediate financial burden can make it easier for both sides to reach an acceptable valuation and avoid protracted litigation.
Notably, engaging a valuation expert or forensic accountant is often critical in resolving a business valuation dispute. These professionals can provide an objective assessment of a company’s worth by analyzing financial statements, evaluating assets and liabilities, and considering intangible factors such as goodwill. The insight they offer can be crucial in negotiations, mediation, or court proceedings to ensure a fair outcome.
Contact an Experienced Long Island Business Litigation Attorney
If you are facing a business valuation dispute, an experienced business litigation attorney can help safeguard your legal and financial interests. At Barnes & Barnes, P.C., we offer skilled counsel and adept advocacy for a wide range of commercial litigation matters throughout Long Island, including valuation disputes and business divorces. Contact us at (516) 673-0674 to schedule a consultation and learn how we can assist you.
