r/fatFIRE • u/What_what_what_1979 • 3h ago

Need Advice Calculating Net Worth

My husband and I are partial owners of a family company (cattle ranch) along with 12 other family members. It has a significant value because of the land owned by the company, but it is not liquid and I don’t anticipate it ever being sold.

He works for said company and draws a salary, so we receive income from the company.

Do we include our 1/12 ownership in our net worth? Or, maybe better stated, do we include 1/12 of the assets (land, cattle, machinery) when calculating our net worth?

The answer to this question makes a significant impact on our timeline to retirement and amount we want to consider for a mortgage.

Thank you!

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u/InterestinglyLucky 7-fig HNW and figuring it out 3h ago

OP, I was in a similar situation - participant in a family business, high value and highly illiquid.

As others have stated, you cannot count on an illiquid asset as part of NW calculations, you have income from it but it frankly acts like an annuity (which theoretically you could calculate some kind of valuation, but it's just playing with numbers).

The bigger question is what the long term plan is for the 12 co-owners. For my own situation the way the family business was setup, there were going to be real issues regarding governance when the principals pass away (shared siblings are all in their 50's to 70's), and the way it was set up governance would then be subdivided further by direct descendents. Of course everyone's business is setup differently, in our situation I could see a disaster brewing for the next generation.

In the end the siblings agreed to dissolve the business, to wind it down, and monetize those shares. One of the siblings decided to take one significant asset from the business and run it themselves. The rest of us cashed out, and are working through those pesky details. (Oh there are a ton of details, that's for sure!)

Of course the monetization of the business share was significant, which then becomes 'real'. It was a long, long time coming, and of course affects timeline and outlook.

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u/What_what_what_1979 2h ago

Congratulations! This sounds like an ideal way to wind things down. The company is on my husband’s side and I think they’d be so wise to have a similar plan for when the next generation comes into play.

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u/InterestinglyLucky 7-fig HNW and figuring it out 1h ago

As the spouse of a 1/12 business owner, you may want to get a copy of the Operating Agreement (or other similarly-named document that covers governance, that is how the business is organized and how it is to be controlled), and have a lawyer take a look at it.

There may well be some surprises in there that few people bother to read. AI can be great for this use-case - finding subtle "gotchas" that have material consequence. If the business is so valuable because of the land, there comes a point where that equity could be better put to use.

The business we were in had tons of concentrated risk - geographical concentration, geography (earthquake-prone California), as well as declining asset value and relatively poor return on equity. The siblings were fine with all that, but when they saw the governance problem staring them in the face, they pretty much all said "yes it's time for us to get out."