Divorce and Your Early Stage Company

Does a marriage ending in divorce spell the end of an early stage company?  The company or an interest in one may be community property subject to divorce settlement negotiations. One spouse may say the company is worthless while the other sees a large value. A dispute can impact the company’s business. Evaluation by a technically qualified attorney can be very useful.

Conventional business appraisal standards are formulated to work for established companies. These standards include the sale price of comparable companies, cash flow, and the cost to replace the business. However, there may be no companies comparable to the early stage company. Even if there are, sale prices are almost always confidential. Cash flow may be irregular and uninformative regarding value. Finally, the replacement cost could become unimportant as the technology advances.

Often, intellectual property is the predominant component of the value of an early stage company. Patents and trademark registrations alone may not represent the value of the company. An “intellectual property inventory” may uncover unrecognized assets. Each asset may be analyzed for its relation to actual or possible revenue generation, attractiveness for a potential acquirer of the company, and other indications.

The calculated value may not turn out to predict eventual actual cash value.  However, meaningful numbers can be generated. This method can give the spouses confidence that a property division based on these calculated values makes sense. Divorce proceedings are often contentious and emotionally charged. This method can reduce delay and difficulty in negotiation of the property division.

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