Do I Need to Perform a Business Valuation During My Divorce?

 Posted on March 03, 2023 in Family Law

Owning a business can be very rewarding, as it can allow you to use your knowledge and skills to fill a need in your community while also ensuring that you can earn profits and provide for your family. As a business owner, you may have built your company from the ground up, and you probably want to be able to continue to reap the rewards of your efforts for years to come. Because of this, you will want to make sure issues related to your business will be addressed correctly in the event of a divorce.

A family business can be one of the most valuable and important assets to address during the property division process. As you determine how ownership of your business will be handled, you will need to understand the full value of business assets. By performing a business valuation, you and your spouse will have the information needed to make decisions about how your marital assets will be divided. By understanding how business valuation works, you can prepare to negotiate a property settlement that will protect your financial interests going forward.

Different Methods That May Be Used to Determine Business Value

There are several different approaches that may be taken when determining the value of your business. The method that is best for your situation will depend on various factors, such as the type of business and your plans for future business ownership. Some common business valuation methods that may be used during the divorce process include:

• Asset-based approach - This method values a company based on its assets (e.g., real estate, inventory, equipment, intellectual property, etc.). The value of all assets owned by the business will be added up, and liabilities such as business debts will be subtracted to determine the monetary value of the business.

• Market approach - This method compares the company being valued to similar companies that have been sold recently. This can provide an idea of how much you would receive if you choose to sell the business during your divorce.

• Income approach - A cash flow analysis may estimate the revenue that will most likely be generated by the company over the next few years, providing a picture of the value that continued business ownership will provide.

• Rule of thumb - This approach uses industry-specific formulas to estimate value. For example, a business's gross revenue may be multiplied by a certain number to estimate the current and future value of business ownership.

Dividing Business Assets

You may have a few different options for addressing ownership of your business during your divorce. If you wish to be the sole owner of the business going forward, you may negotiate an agreement with your spouse that will ensure that they receive assets that are valued similarly to the business. This is sometimes known as a "buyout," since you will effectively be purchasing your spouse's share of the business. If necessary, a payment plan may be set up that will allow you to pay off the amount owed to your spouse over time.

If continued ownership of your business is not desirable or feasible, you may choose to sell the business during your divorce, and you and your spouse can divide the profits earned along with other marital assets. If both you and your spouse have been involved in the business, you may choose to continue working together as co-owners and business partners. However, it is a good idea to set up a formal business partnership, which will ensure that both of you understand your rights, your responsibilities, and your options for making changes to business ownership in the future.

Contact Our DuPage County Divorce and Business Valuation Lawyers

A business valuation can be a crucial step in the asset division process. At Mevorah & Giglio Law Offices, we can help you work with accountants, appraisers, or other financial experts to gain an understanding of the true value of your business, and we will help you negotiate a property settlement that will meet your needs. Contact our Naperville business asset division attorneys today at 630-932-9100 to arrange a free consultation.

Sources:

https://www.investopedia.com/terms/b/business-valuation.asp

https://www.uschamber.com/co/run/finance/business-valuation-how-to-guide