How Are Business Valuations Handled During Divorce Cases?

 Posted on November 04, 2021 in Asset Division

Of the various issues that must be addressed during a divorce, matters related to a couple’s property and finances are often among the most complex. When negotiating a settlement that fully details the division of marital property, spouses will need to make sure they fully understand the different assets they own, the value of their property, and how dividing these assets will affect each spouse’s finances both immediately and in the future. These determinations can be especially complicated in cases where one or both spouses are business owners, and a business valuation will usually need to be performed to ensure that the spouses fully understand the value of business assets and the ways these assets may be divided fairly and equitably.

Business Valuation Methods

The approach taken to determine the value of business assets will depend on a variety of factors, including how the spouses expect ownership of the business to be handled, whether they plan to sell the business, and whether the business may increase in value in the future. Spouses will usually need to consult with financial experts when performing a valuation, and these experts may use one or more of the following methods:

• Market-based value - A business’s fair market value may be determined by considering the amount that owners would receive if the business was sold. Experts may look at other similar businesses that have recently been sold, as well as other factors that may affect a sale, such as the business’s goodwill. This approach may be helpful in cases where spouses plan to sell a business during their divorce, but it may not provide a complete understanding of the continuing value of a business that will be owned by a spouse after their divorce.

• Asset-based value - The value of a business may be calculated by adding up the value of all of the business’s assets and then subtracting the business’s debts or liabilities. This can provide a good idea of the current value of the business, but it may not fully address how the value of the business may be expected to change in the future.

• Earnings-based value - To gain an understanding of how a business may increase or decrease in value, experts may consider the business’s past earnings and its projected future earnings, as well as any other factors that may affect the growth of the business and the income and profits that it will earn. This can help spouses understand the benefits and drawbacks of continued ownership of the business, ensuring that they will be able to divide business assets fairly and equitably.

Contact Our DuPage County Business Valuation Lawyers

During your divorce, it is crucial to gain a full understanding of the value of your marital property, including family businesses or other business interests owned by you or your spouse. At Goostree Law Group, we can help you perform a business valuation, and we will work with you to negotiate a property settlement that will protect your financial interests and allow you to provide for your needs after your divorce has been finalized. Contact our Wheaton asset division attorneys today at 630-364-4046 to schedule a free consultation.

Sources:

http://www.smbceo.com/2019/11/19/how-to-value-a-small-business-for-divorce/

https://mercercapital.com/article/valuation-of-a-business-for-divorce-overview-of-valuation-approaches-normalizing-adjustments-and-potential-need-for-forensics-services/