When you own a small business, dividing up the marital estate in your divorce can turn into a complicated back-and-forth with your spouse about how much the company is actually worth.
No matter what side of the issue you’re on, you want the business to be valued fairly. Not only will that affect how much you walk away with in the settlement, but it can also influence how much child support you pay (or receive).
There are numerous ways to determine the real worth of a business, but here are three of the most popular:
Market comparisons
Basically, this method asks the question, “How much is the business worth if it is sold today?” This is often the easiest way to value a business – if you can do it. Much like figuring out the selling price of a house, a market comparison valuation relies on “comps” or comparisons to the sale price of other, similar businesses.
Unfortunately, it’s not always possible, especially if your business is unique. Even if your business isn’t particularly unusual, sale records of similar businesses may not be readily available.
Asset-based valuations
This method involves subtracting your business liabilities from the value of your assets. This is sometimes the preferred method for “asset-rich” businesses, like trucking companies, retail stores and companies that own a lot of real estate or investments.
This approach is also sometimes used when a business has been showing net losses but one spouse believes that there’s actually quite a bit of value still to be explored.
Earnings-based method
If the company is profitable, this may be the best approach to valuation. It’s also useful if there are questions about how much income a business owner can reasonably be assessed for purposes of support.
To keep the process fair, couples often negotiate both the way that the business will be valued along with who will do the valuation. Experienced legal guidance can help you look at all the options and decide what strategy to take in your high asset divorce.
