Navigating Insurance Agency Valuation in Divorce

By Team INEX |

The division of assets following a divorce is often complex, especially if either party owns a business such as an insurance agency. An accurate valuation is crucial to ensure the equitable distribution of marital assets and avoid further complications. If the parties disagree on an insurance agency valuation, you may need to call upon experts to resolve the matter.

INEX can help you navigate the process, performing a detailed agency valuation and providing testimony to verify its value. This article offers insights into the insurance agency valuation process, how valuations factor into divorce proceedings, and how INEX can assist.

How Insurance Agency Valuation Works

Calculating a business’s worth is a complex matter involving several factors, from the revenue the business generates to its level of risk that could pose a future financial liability. The factors that affect value are specific to each asset, but some of the most common include the business’s annual revenue, tax liability, and the depreciation or appreciation of its assets. Expert insurance agency valuation consultants also evaluate financial reports to determine how profitable the business is by estimating future profits.

Beyond financial factors, intangibles such as an agency’s book of business, client relationships, and carrier partnerships also factor into agency valuation. Much of an insurance agency’s value comes from measuring its future patronage expectations, known as goodwill. At INEX, we examine personal and business goodwill using the INEX Goodwill Evaluation MatrixTM and various analyses to evaluate a company’s operations and owners, along with its clients’ revenue streams and profitability. Such intangibles require professional evaluation, as these are much harder to calculate than the value of physical property, equipment, and cash.

The final net worth results from weighing all assets and revenue against the liabilities and costs of running a business. It takes time and expertise to identify these factors, along with any potential risks that may affect the value.

Valuing an Agency in Divorce

Before an appraisal process begins, the agency must determine a standard of value, which is typically either fair market value or fair value for divorce cases. Fair market value refers to the price a buyer would likely pay for the asset. Appraisers may apply discounts to the fair market value, such as a discount for lack of marketability (DLOM).

Fair value is similar to fair market value but is ultimately determined by the court handling the case and does not include discounts.

Insurance agency valuation consultants and attorneys must also adhere to the statutes of the jurisdiction of the case. Some use fair market value, and others don’t. Many states don’t provide a clear definition of the terms of value, so the consultants and legal team must find guidance in case law and past litigation.

Collaboration with Legal Professionals

Clients going through a divorce often face civil litigation complications when parties argue over the value or ownership of various assets, particularly those with complex valuations such as a business.

Knowing the methodologies employed by INEX in determining value can help uncomplicate the process. Our consultants use every tool at our disposal to calculate the asset’s fair market value based on tangible and intangible assets. We provide both professional advisors and attorneys who contribute deep insights into the financial and legal aspects of the case, collaborating with legal teams to provide comprehensive and accurate valuation reports.

When disputes extend into court proceedings, INEX is there to lend its expertise and litigation support. Our executives have served as trial witnesses in many insurance claims disputes. These expert witnesses are a critical part of civil litigation cases and are necessary to provide testimony to settle disagreements over an insurance agency’s valuation during divorce trials.

Making the Most of Challenging Times

Divorce can have serious financial consequences for jointly held business assets, especially when the proceedings draw out over time. Aside from the financial impact of managing and dividing assets, the emotional state of the couple can negatively affect business decisions and productivity. Securing a professional valuation can bring clarity to the situation and make it easier to discuss asset division while protecting shareholders’ interests and business operations.

Navigating the process with help from expert consultants is the best way to access consistent advice and support to address any questions and concerns as they arise. A professional valuation from INEX can help inform negotiations of the division of assets and settle the divorce more swiftly.

Contact INEX today to learn more about our consultancy services for insurers, and inquire how a professional insurance agency valuation can contribute to a swift and fair resolution of divorce proceedings.

About INEX

Founded in 2000, INEX Capital & Growth Advisors is a multi-disciplinary firm providing management consulting to the owners of insurance agencies throughout the United States. Our senior principals have participated in more than 500 perpetuation, merger, or acquisition transactions over the past two decades.

We are thought leaders and agency experts in multiple areas — from providing agency succession plans to valuation services to assisting with strategic planning and mergers and acquisitions, financial structure optimization, revenue maximization, and others to help agency owners seize opportunities that will bring current and future rewards. We also provide support in areas such as staff development and operational improvements.

The consulting arm of our company works with the management of insurance agencies and provides expert witness services and insurance coverage analysis in various insurance litigation cases.

To learn more, call us at 603-665-6000 or visit our website.