Why you need to properly valuate your business in divorce

Why you need to properly valuate your business in divorce

Dividing property during the divorce process can be stressful, not only because emotions are often running on high, but also because the outcome can have significant financial ramifications for a long time to come. While this is true in nearly every case, the property division process can be especially complicated when a business is involved. This is because merely obtaining an accurate value of the business can be challenging. Yet, securing a proper valuation is key to ensuring that you receive your fair share of what could be the most valuable asset coming out of your marriage.

How businesses are valuated during divorce

There’s not one way to valuate a business. Instead, there are several methodologies that could give you different outcomes. For this reason, you should have a familiarity with each valuation method so that you can advocate for the one that is right for you. Here are some of the more common approaches:

  1. Income approach: With this method, you essentially assess the business’s income over a specified period of time to try to gauge what it’s earnings potential will look like in the future. In order to get an accurate value out of this method, though, you’ll need a significant history of income. Therefore, this method is best suited for businesses that are well-established and profitable.
  2. Market approach: With the market approach you try to determine what your business is worth based on what it would sell for given current market conditions. This requires you to be able to compare your business to similar businesses that have recently sold in your area, which may be challenging to do. The difficulty here is that there are so many differentiating factors amongst businesses, including location, equipment, and even marketing materials that it can make it nearly impossible to find a truly comparable business in your area.
  3. Cost approach: This approach focuses on the fair market value of the business’s net assets. This means that depreciation is taken into account. Another way to think about the cost approach is to look at each asset and consider what it would cost to replace that asset given its current state.

These are just three of the most commonly utilized valuation methodology, and others may be suggested during your divorce. Which method is right for you? That really depends on the circumstances, which is why it’s beneficial to discuss the facts of your case and your business with your attorney and a business professional before moving forward.

Competently navigate your business-related divorce issues

As difficult as business valuation can be, it’s just one aspect of your business that you’ll have to deal with during the course of your divorce. For example, you’ll also want to ensure that your spouse isn’t artificially inflating business debts in hopes of lowering the value. This, then, allows them to keep higher asset value for themselves post-divorce. This is unfair and unacceptable, and it highlights one of the many areas that you need to be prepared to address in your divorce.

We know that it can be stressful to work through a complex marriage dissolution. But you don’t have to try to figure out the process on your own. In fact, you can work closely with a skilled legal advocate who can do a lot of the heavy lifting for you, fighting to ensure that you receive your fair share of the marital estate. If you think that you could benefit from that kind of advocacy, then you may want to reach out to an attorney of your choosing to discuss the specifics of your case in detail.