The toughest nut to crack in many divorce asset searches is the private company. While people always want immediate access to bank accounts (and aren’t allowed to get them without discovery), you can always start to try to figure out what someone’s private company is worth.

If a U.S. company is private, it doesn’t have to publish its earnings. If you know the name of the company, you can subpoena its tax returns, but it’s well known that many companies look a lot less healthy to the tax collector than to the accountants figuring things out according to generally accepted accounting principles (GAAP).

As a matter of public policy we endorse two different valuations (tax and GAAP), but how do you know how much a company is really worth? Many divorcing parties suddenly encounter “a bad year” just around divorce time, pleading that their company has taken an economic hit. Sometimes that’s true, and sometimes it’s a lie.

There are business valuation specialists, of course, and many of them operate on the basis of comparable value: What does a similarly sized company in a similar place go for? That’s roughly what your spouse’s company would go for. Unsurprisingly, many divorces feature dueling valuations.

Better to Investigate Before the Valuations People and Forensics

We often get called in before the valuation people, and we like to be involved before the forensic accountants too. The more information both professionals know is there and is missing, the better they can do their jobs.

What follows is an abbreviated list of some the ways to figure out how well a private company does.

  • Litigation. If a company gets sued by someone who knows it well (because they worked there or did business with it) all kinds of interesting facts can come out in the pleadings. We once needed to find out how big a company was when our client was deciding how much to offer for the trademark. A former warehouse worker said in a lawsuit that the loading dock employed 35 people (more than we would have guessed). Former employees and associates are also great people to interview.
  • Property tax records. If a company occupies an entire city block and we find no tenants in the building, we know it should be taking in well over what it pays in taxes (or else it should be moving soon or going out of business).
  • Regulatory filings. A company may be private, but if it wants to raise $5 million from investors, it has to file notice of this so-called private placement. If a company has consistently raised millions over the years, someone probably thinks it has value, even if it has yet to turn a profit. Those people could be good to interview too, because owners of private companies need the earnings every year for their own taxes.
  • Foreign filings. Private companies in the U.S. don’t disclose earnings, but companies of all sizes in the United Kingdom do. Never assume what’s off-limits in this country is off-limits everywhere.
  • Regulatory filings. Companies may not have to tell you what their profits are, but sometimes other figures are public. Take lobbying firms: they disclose all their sales in filings to the U.S. Senate under the Lobbying Disclosure Act of 1995.  You can see all the clients there and how much they’ve paid. There are estimates of what a lobbying firm’s profit margin should be, and there you go – a rough estimate of how much money the firm makes.
  • Finally, company boasting. People not about to get divorced love to talk about how much money they make, how well their company does, and how much better they are than their peers. Say your subject’s company is private, but in a news release they claim to be the most profitable firm in their peer group. If one of the peers is public, you can use that to estimate the baseline profitability of the company. The great thing about some news databases is that they keep every single news release by the company, even after it’s been wiped off the company’s own website.

Private companies can be hard to crack, but with some creativity and patience, it’s surprising what you can sometimes find out about them. It will take a lot more than a bit of Google searching, but it can often be done.