How is a business valued in the equalization of accrued gains?

Two cut-off dates, not one

Accrued gains are a difference: final assets minus initial assets. For a business that means it is valued twice: once at the time of the marriage § 1374 BGB and once at the time the divorce application becomes pending § 1384 BGB. What is equalized is only the value added in that time.

The initial assets do not stay at their nominal amount in the process. So that mere monetary depreciation does not appear as a gain, the value brought in is projected forward to the final cut-off date using the cost-of-living index. Only the difference between the two values determined that way is the gain, half of which is to be equalized. Anyone bringing an already valuable business into the marriage therefore gives up only the growth during the marriage; the original substance stays untouched.

Which valuation method does the court choose?

For a business that continues in operation, the modified capitalized earnings method is the standard case: what is valued is above all what the business can sustainably earn in future, beyond the mere stock of machinery and assets. The asset value, the value on a notional liquidation, forms the lower limit, which is not undercut § 1376 BGB.

There is no formula prescribed by statute. The court of first instance chooses the method, usually supported by an expert report following the principles of the IDW S1 standard. The yardstick remains in every case the true value, the objectified market value, independent of a book value for tax purposes or of the price one side would like. Our task lies in setting the course in family-law terms: the right cut-off date, the correct approaches and the limits of what the report can carry. The actual calculation is done by the expert.

The notional owner’s salary

With owner-managed businesses in particular, and with the practices of professionals such as doctors, lawyers or tax advisers, a considerable part of the earnings rests on the person themselves. That part is not transferable goodwill. A notional owner’s salary is therefore deducted: the amount an employee would earn for the same work. What remains is the value that would continue to exist without you, and only that belongs in the accrued gains. Without that deduction your own working capacity would be counted twice: once in maintenance and a second time as an asset.

Deferred tax

A business value is a value before tax. Were the business actually sold, a capital gain would arise and income tax on it. That deferred tax burden is deducted as a factor determining value, and it is deducted even where no sale is planned at all. The reason is simple: the value shown is undiminished only “on paper”; in reality it could be realized only reduced by the tax. Overlooking that deduction is one of the most expensive mistakes in a dispute about a business.

From the value to the payment

Once the value stands, the real test of endurance follows: the equalization is a claim for money § 1378 BGB, half the difference between the two sets of accrued gains, due in one sum. How that half follows from the initial and final assets of both sides you can work through roughly with the accrued gains calculator. The value, though, is tied up in the business and does not sit ready as money in the account.

How that gap can be bridged without a loss of substance is the next question: for that the law knows deferral and payment in instalments; on that, paying the equalization without breaking up the business. How valuation, maintenance, the pension rights adjustment and discretion interact in an entrepreneur’s divorce is bundled by divorce for entrepreneurs and executives. Anyone who still has time starts earlier and takes the business out of the equalization as a precaution: excluding or modifying the equalization of accrued gains by prenuptial agreement. And to get to solid figures in the first place, the right to disclosure helps. The frame for all of it is explained by our page on assets & accrued gains.

Legal notice: This article is provided for general information and does not replace legal advice in an individual case. Any laws, deadlines and amounts mentioned reflect the state of affairs at the time of publication and may change. A binding assessment requires a personal consultation.