For couples who own a business, the property division process during divorce can be especially complicated. If you own a business and are divorcing, it is a good idea to understand how the business will be valued for property division purposes.
Business valuations during divorce
There are two primary methods of business valuation that may be used and the divorcing couple will want to engage an expert or experts to value the business. One method of valuation is the book value method.
The book method looks at what the assets of the business are worth. Liabilities will also have to be taken into account. This approach takes into account the value of the assets at the date of purchase and subtracts any depreciation in that value.
The second most common valuation method is the market approach. This method of valuing the business is based on the earning capacity of the business and what an outside buyer would value the business at to purchase it. Generally, the valuation will look 5 years back and attempt to project how the business will do in the following 5 years.
The timing of the valuation can also be important because divorces can take a while to be finalized. It is beneficial to have the valuation be as current as possible related to the hearing date for the property division agreement.
The property division process can be complicated and confusing at times, which is why you should understand how a business is valued. You can use that information to better anticipate your needs for property division, including implications for your business, as you enter property division negotiations during your divorce.