Ending a marriage in divorce is a confusing and emotionally troublesome procedure. Unfortunately, addressing your finances may complicate the process, especially when you own a small business.
While dividing your marital property, you may find that some assets are easy to split. However, commercial assets usually require extra steps before you can distribute their value.
Business valuation approaches
If you and your spouse own a business together, a valuation is the first step in determining how you will divide the company. According to the U.S. Small Business Administration (SBA), business valuation is the process of evaluating a business’s worth. The SBA also identifies ways to determine a company’s value.
The most common techniques include the asset, income and market-based approaches.
The asset approach considers both tangible and intangible assets and liabilities compared to market value. The income approach bases a business’s worth on current cash flow and estimates of future income. Lastly, the market-based approach looks at the selling price of similar companies to determine a business’s value.
Depending on your unique circumstances, you will likely utilize one of these valuation techniques.
Business valuation in divorce
During the divorce process, each party should pursue an individual business valuation. Because different valuation approaches may have different results, you do not want to rely on your spouse’s determination of the business’s worth. Whether you use an approach by yourself or hire someone else to do it is up to you.
Either way, by better understanding the complexities of a business valuation, you may feel more familiar with the terminology and procedures used in court, allowing you to be a better advocate for yourself during the divorce process.