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How are businesses valued in divorce?

On Behalf of | Sep 29, 2021 | Divorce |

If you are getting divorced and are a business owner, it’s important that the business is properly assessed and given a value. By doing this, it’s possible to determine the parts of the business that are marital property or separate property and to determine the true value of the business overall.

Once you know the value of your business, you’ll be in a better position to use the company as leverage during negotiations.

Don’t just look at the books to determine value

Determining the value of a business is about more than looking at the books and the profits or losses the company has reported. While you and your spouse may show $500,000 in profits, for example, you also need to look at other aspects of the business that may provide value, such as investments.

To ensure that the valuation of your business is fair, it’s normal to work with business valuation experts and forensic accountants. These individuals will work together with your attorney to determine the true value of the business including all assets, losses and investments.

How can you value a business?

There are a few different ways to determine a business’s value, such as by looking at its:

  • Overall revenue
  • Book value
  • Market capitalization
  • Projections of future cash flow
  • Liquidation values
  • Earnings multiplier

If you have to work with a professional to determine the value of your business, you may want to find one who is accredited in business valuation. The ABV certification requires an application, examination and experience/education requirements, so you can be more certain that the valuation that your business receives will be accurate.

How does a business valuation help?

By knowing the value of your business, you can determine how to use it as leverage in the divorce. For example, if you’re entitled to 50% of the business’s value, you might be willing to exchange that share for other assets if your spouse wants to retain control of the company. This is something to consider as you talk through your property division issues with your attorney and work on dividing your shared marital assets.